Apartment Shortfall Predicted Despite Sales Recovery


The national pipeline for new apartments is continuing its trickle, research released this week has revealed, with predictions that in three years it will be a quarter of 2018's level.

Despite variations across a multi-speed national market, overall, the new apartment inventory is trending down as an improving rate of sale absorbs existing stock, the latest Apartment Essentials report from planning consultancy Urbis shows.

The number of apartments launched nationally dropped from 5000 in late 2019 to 3250 in early 2021.

The report, based on 2500 build-to-sell and build-to-rent projects monitored in Sydney, Melbourne, Brisbane and the Gold Coast, highlights impacts on new apartment rents to inform investor, affordable housing and build-to-rent metrics.

“It is clear the new apartment pipeline is grinding to a halt,” Urbis director Mark Dawson said.

“At this point the next four years are looking far leaner than the previous four years from a settlement pipeline perspective.”

Urbis now expects apartment settlements, which peaked at more than 40,000 in 2018, to shrink to 20,000 by 2022 and 10,000 by 2024 as developers continue to stall and hold back launching new projects to market.

Volume of apartments launched

Volume of apartments launched 2021

^Source: Urbis

Less than 9 per cent of the total pipeline was now in pre-sales and the majority of apartment supply was approved but not yet launched to market, while 20 per cent of apartment volume has been deferred.

Clearance of available off-the plan stock increased to 20 per cent as a national average, up from 16 per cent in the previous quarter, led by stronger results in the Gold Coast, Perth and Brisbane Markets.

Sales during the quarter were mainly to owner-occupiers, who made up 62 per cent of all sales, double the 31 per cent figure of 2016.

Clearance of available inventory during the past four quarters has fluctuated between 6 per cent and 12 per cent in Melbourne and 4 per cent to 11 per cent in Sydney—averaging 9 per cent and 7 per cent respectively.

Two- and three-bedroom apartments were the most popular for owner-occupiers, the report found.

During the first quarter, 62 per cent of sales were to owner-occupiers, doubling their share of sales nationally since 2016.

“We are currently at a stage where demand is about to overtake supply nationally, but the real tipping point for increased activity from developers will come when the speed of sales increases in the two biggest markets, Sydney and Melbourne,” Dawson said.

“The opening of borders and an uptake in international investment will be the biggest boost to these markets.”

▲ A decade-low apartment supply cycle is underpinning investment opportunities for developers in the residential sector.
▲ A decade-low apartment supply cycle is underpinning investment opportunities for developers in the residential sector.

Speaking at The Urban Developer’s Residential vSummit, CBRE head of residential valuations Jarrod Frazer said the gap between houses and apartments had widened dramatically during the past six months due to sentiment.

“We are starting to see some better sales that we can hang our hats on lately, particularly in Sydney in the prestige market and Melbourne with sites and developments that have a unique selling point or ‘wow-factor’,” Frazer said.

“For developers looking to reboot apartment projects, there are still a number of risks.

“Rather than specific states or cities, we are seeing more risk at a national level when the development or product being proposed is wrong for the area.”

Across the country, unit prices have started to recover, gaining 1.8 per cent during the first three months of the year and recouping all of the Covid-19-induced losses.

According to Corelogic’s latest quarterly figures, rental values across Melbourne’s apartment market sank by 20.1 per cent in the March quarter, despite prices lifting by 2 per cent over the period.

Melbourne landlords have also struggled to offload their property because of the perceived risks of high-rise apartments and preference for standalone homes.

The launch of 65 new build-to-rent projects being launched across the country’s largest cities also continue to weigh on apartment values.

The total projects represent 16,275 apartments, equivalent to 0.5 per cent of the total residential pipeline—triple the volume of the build-to-rent pipeline in 2016, and it could double to 1 per cent of the total by 2024.

Frazer warned that apartment products in the lower-socio-economic areas had continued to perform poorly with the gap in settlement valuations widening.

“It isn’t to suggest that these products can’t work, there are just a few challenges that need to be addressed in order to get these projects moving,” he said.

“That uniqueness of a site and ‘wow-factor’ that can be added to a product is what is driving value, and developers need to be alive to their development’s point of difference.”

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