New apartments to attract premium prices as supply forecasts tighten

New build apartment prices are forecast to grow 23% by 2026 as supply tightens to circa 45% below pre-pandemic completion rates over the next five years (FY25-29), new CBRE research shows.

CBRE’s Apartment Vacancy and Rent Outlook 2H 2024 estimates over the next 10 years, demand for housing is expected to benefit from a combination of population growth (+3.9 million), employment growth (+2.6 million) and rising income (+$36,000).

CBRE’s Pacific Head of Research Sameer Chopra said newly built apartments are commanding a premium price compared to older stock.

“These premiums are justified by changing consumer expectations around amenities, like building security, lift access, flooring to rooftop gardens and gyms, which typically come with newer builds,” Mr Chopra said.

New one-bedroom apartments are delivering a 16% premium compared to older apartments, new two-bedroom apartments are at a 30% premium and it’s 45% increase for newly built three-bedroom apartments.

The report forecasts rents will grow by 25% ($170 per week) between 2024 and 2029 across 59 suburbs in Australian capital cities. By 2029 it’s predicted the rent for a two-bedroom apartment will exceed $600 per week across 90% of precincts.

In terms of supply, delivery of new apartments is expected to be around 50,000 per year from 2025 to 2029 but population growth is expected to require an apartment supply of approximately 75,000 per year to avoid further falls in vacancy.

In Sydney, apartment delivery is expected to average 12,100 per year from 2025 to 2029 with demand for stock to average 30,00 per year across the next five years. In the next three years, city-wide vacancy is expected to fall from 2.2% to 1.5%.

In Melbourne, apartment delivery is forecast to average 8,700 per year for 2025 – 2029, nearly 35% lower than Sydney. Demand for stock is likely to average 37,000 per year over the next five years. City-wide vacancy is expected to fall from 1.8% to 1.4% over the next three years.