Article | Future Cities
Regional Australia shapes up as the next target for build-to-rent
June 22, 2021
Our latest research report ‘Build to Rent in the Regions’ compares the still emerging build-to-rent (BTR) markets in Australia and New Zealand to more established markets in the UK and the US. It highlights that regional Australia could be an untapped opportunity for BTR developers, backed by lower construction costs, population shifts and the successful roll-out of similar product overseas.
In Australia, the BTR sector is still at an early stage of its evolution, but despite some challenges and barriers, there is a fast-growing pipeline of new product and the first purpose-built buildings are now operating as stabilised assets. Most of the development to date has been in Melbourne’s inner city and in Sydney’s population growth corridors, with Brisbane’s inner city also on the radar.
The city centres are where the housing need is the most acute, renter population growth the strongest and rents the highest. However, developers are facing a series of challenges, including high land values, a lack of suitable land and strong competition for prime sites.
We know it can be difficult to make a highly amenitised city centre BTR project stack up, which is one reason why regional markets could be appealing. They offer lower land costs and lower densities which help to reduce overall construction cost and can mitigate some of the issues that city centre developers are facing.
While cost is an obvious driving factor for targeting BTR development opportunities in regional locations, our report also uncovers the impact that population trends, such as working from home and movement patterns, have on this opportunity too.
It’s evident from the report that people are moving away from larger capital cities. September quarter 2020 data was the highest on record for residents moving from capital cities to regional locations. And the trend continued into the December quarter.
There will of course be several factors that determine which regional markets will be more suited to BTR products. Build-to-rent typically carries a price premium, due to the associated services and amenity. Even though development costs will be cheaper in regional areas, BTR housing will be more expensive than existing rental stock. This means that occupier households would typically require more than one income source. There also exists a consumer demand for better quality rental product both inside and outside of Australia’s capital cities.
The report also reveals data from overseas markets having success in regional BTR development, particularly in markets with a high enough proportion of renter households. In the US, BTR is known as multifamily housing. Highly urbanised areas such as the New York-Newark-Jersey City market, have the highest volume of stock - there is one multifamily unit per eight people. But there are smaller yet thriving markets in less urbanised areas such as Buffalo-Cheektowaga which has one multifamily unit per 17 people.
Similarly, in the UK, 81,000 build to rent units are in London, but over 99,000 units are in alternative cities, both with larger populations such as Liverpool and Manchester, as well as less dense, regional cities, such as Norwich, Bristol and Newcastle upon Tyne.
It’s these case studies, from similar markets, that re-enforce the opportunities to be had for BTR development in regional Australia.
In conclusion, lower construction costs, population movement shifts and the successful roll-out of similar product in the US and the UK, could all help spur on regional Australia BTR projects in the future.
In Australia, the BTR sector is still at an early stage of its evolution, but despite some challenges and barriers, there is a fast-growing pipeline of new product and the first purpose-built buildings are now operating as stabilised assets. Most of the development to date has been in Melbourne’s inner city and in Sydney’s population growth corridors, with Brisbane’s inner city also on the radar.
The city centres are where the housing need is the most acute, renter population growth the strongest and rents the highest. However, developers are facing a series of challenges, including high land values, a lack of suitable land and strong competition for prime sites.
We know it can be difficult to make a highly amenitised city centre BTR project stack up, which is one reason why regional markets could be appealing. They offer lower land costs and lower densities which help to reduce overall construction cost and can mitigate some of the issues that city centre developers are facing.
While cost is an obvious driving factor for targeting BTR development opportunities in regional locations, our report also uncovers the impact that population trends, such as working from home and movement patterns, have on this opportunity too.
It’s evident from the report that people are moving away from larger capital cities. September quarter 2020 data was the highest on record for residents moving from capital cities to regional locations. And the trend continued into the December quarter.
There will of course be several factors that determine which regional markets will be more suited to BTR products. Build-to-rent typically carries a price premium, due to the associated services and amenity. Even though development costs will be cheaper in regional areas, BTR housing will be more expensive than existing rental stock. This means that occupier households would typically require more than one income source. There also exists a consumer demand for better quality rental product both inside and outside of Australia’s capital cities.
The report also reveals data from overseas markets having success in regional BTR development, particularly in markets with a high enough proportion of renter households. In the US, BTR is known as multifamily housing. Highly urbanised areas such as the New York-Newark-Jersey City market, have the highest volume of stock - there is one multifamily unit per eight people. But there are smaller yet thriving markets in less urbanised areas such as Buffalo-Cheektowaga which has one multifamily unit per 17 people.
Similarly, in the UK, 81,000 build to rent units are in London, but over 99,000 units are in alternative cities, both with larger populations such as Liverpool and Manchester, as well as less dense, regional cities, such as Norwich, Bristol and Newcastle upon Tyne.
It’s these case studies, from similar markets, that re-enforce the opportunities to be had for BTR development in regional Australia.
In conclusion, lower construction costs, population movement shifts and the successful roll-out of similar product in the US and the UK, could all help spur on regional Australia BTR projects in the future.
Learn more about Build-to-Rent in Australia
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