Article | Intelligent Investment

Residential Airspace: Australia’s untapped multibillion dollar opportunity

Airspace development is close to a $86 billion industry in the UK. Could Australia see the same investment opportunities? We spoke to the industry experts to find out.

March 22, 2024

Aerial view of a residential building.

Australia’s housing shortage crisis won’t see relief anytime soon. It’s a collective view shared by CBRE’s leading experts, which paints a challenging environment for those looking for a place to call home and significant opportunities for investors looking for promising returns.    

“We've got four years of worsening supply situations,” said David Milton, CBRE’s Managing Director of Residential Projects in Australia, in a recent article.  

“That’s four years of decreasing supply and increasing demand. And then there'll be a four to five year lag period before we catch up. We're going to be in one of the most difficult markets for people who are looking for a home. The pressure that this demand is going to put on rents will bring a lot of investors back into the market, particularly with talk around interest rates coming back down.” 

So, could building new rooftop homes in the air space above older style apartments be one of the potential solutions to the nation’s predicament?  

It’s a question we posed to Warren Livesey, the founder of Buy Airspace and founder of the Association of Rooftop & Airspace Development, in our latest Talking Property podcast episode. The conversation also features insights from Toby Silk, a director in CBRE's Metropolitan Investments team who’s been actively involved in selling apartment blocks to investors in today’s market.  

What is residential airspace 

“Typically, airspace is anything above a property,” explains Livesey. “When you buy a property, you own the airspace all the way to heaven and hypothetically, all the way down to hell. It's just the actual council that restricts you from putting anything over and above what is actually required.” 

While the emphasis is on residential airspace, the same rule can also apply to commercial real estate across office blocks and shop tops.  

“There's a big focus on strata property at the moment because it has the largest amount of airspace available to build new rooftop homes that isn’t being used when compared to commercial airspaces.” 

Can it work in Australia? 

Residential airspace may be a relatively new concept to Australia, but in countries such as Europe and the US, the question of high-density living has long been at the forefront of residential planning. 

“Airspace development is close to a $86 billion industry in just the UK,” says Livesey. “They've approved 180,000 airspace homes in and around hospitals and transportation hubs.”  

He sees the opportunity in Australia to construct up to 250,000 new rooftop homes, with significant potential in New South Wales, which has approximately 90,000 strata apartments or blocks.  

“Of those apartments, your average strata block is about an eight-to-12-unit scheme. It is generally a three storey walk-up with about 300 square metres of roof space which isn’t being used. Multiply that figure by 90,000 and that equates to 27 million square metres of roof space. Multiply that to an average of 10,000 to 12,000 or 15,000 a square metre for sale value, and you're actually looking close onto $400 billion. 

“In Australia, we can also build close to 100,000 new airspace homes in around our hospitals for essential workers. Nothing needs to be knocked down and replaced, and the key aspect of airspace development is that it's the greenest housing solution available.” 

Despite all the potential opportunities, residential airspace doesn’t come without some challenges. Livesey says that the real testing part in Australia comes from the fact that strata owners aren’t typically trained in this area, they don't normally have the funds, or may not always get along with their neighbours.  

“The best way to adapt or unlock that airspace is by negotiating or tendering out the space to an airspace developer and doing a joint venture contract with an experienced expert in the field. These experts have the finances involved and they will look after the whole project from start to finish.” 

What are the benefits?

Residential airspace has the potential to provide a host of benefits for investors and strata property owners. The opportunity to capitalise on the current rental growth trend is the most evident, according to Silk, who highlights a 35 percent increase in residential rental growth for apartments in 2022.  

“Just last year we saw them grow by 16.5 percent and this year it's expected to moderate to somewhere around 10 percent. We are seeing huge amounts of properties coming to market alongside many buyers. 2024 should be an exciting time for us with strong growth to be had in that sector. 

“Other opportunities that apartment blocks can provide investors is if it is on one title,” he adds. “You can strata title the apartment block and you can apply for a residential loan as opposed to a commercial loan. This allows you to unlock some more equity which you can then use to invest into another asset, or you could sell down the apartments individually. There are opportunities there to take a few different angles for an investor and diversify their risk.” 

Beyond this broader investor lens, leveraging residential airspace could also help Australia’s aging population and downsizers find a suitable home. 

“This group wants something that's a bit more conveniently located to amenities as well as requiring less maintenance than a house.  

“A lot of the apartment blocks that are currently out there, especially the aged ones, don't facilitate what downsizers are after and don't have the right infrastructure in them. They’ll need lifts and similar features since these owners want to ensure that they're future proofing their properties to accommodate as their forever home. They don't see themselves moving out of this property, so ensuring it has high-end luxury features and ticks all their boxes is a priority. 

Where Livesey’s airspace concept can be most attractive is for the apartment blocks located in prime locations with views.  

“Even if these owners were to sell out to a developer, the chances of them being able to buy an apartment within that same location on the money that they've been offered is next to nothing,” says Silk.  

“They want to stay in that same location, but the block generally has some issues like not having a lift. What they’ll need to do is talk to someone who can potentially activate the roof space and use that to convert into more apartments. And then they can use that money to upgrade their building and make sure that they future proof their position in that property.  

“It's definitely a niche within the market and there's a lot of people that I think could find huge advantage in what Warren is proposing.” 

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