Tailwinds for Build-to-Rent as sector surpasses new milestone
Australia’s Build-to-Rent (BTR) development pipeline has surpassed a landmark threshold of 11,000 units – across more than 30 projects – through a major acceleration of new projects.
23 Jul 2020
This is one of the key highlights in a recent CBRE report: Build-to-Rent Development Pipeline, which profiles the sector’s supply and development in Australia over the first half of the year.
As the BTR asset class continues to gain momentum in the Pacific market, the report credits a weakening of new residential supply across Australia, which was already in decline pre-COVID-19, providing potential tailwinds for the sector over the next 12-24 months.
In 2019, residential commencements were circa 35% below 2018 levels, with CBRE Research estimating that the market will tip back into an undersupply situation from 2020 onwards for the first time since 2014.
CBRE Research’s Ben Martin-Henry said the impacts of a much lower rate of population growth from 2020-22 would, however, offset lower supply scenarios and push dwelling undersupply in many markets out to 2022 – rather than this occurring earlier.
“Build-to-Rent has a role to play in filling this market void, with the sector facing a perfect storm of ideal conditions,” Mr Martin-Henry continued.
“We expect to see developers capitalise on the dynamics accelerating structural shifts in demand drivers, such as young, well-educated urban professionals prioritising lifestyle aspirations over home ownership (due to unaffordability) and thereby seeking to rent in well-located, high-quality residential developments.”
CBRE’s Puian Mollaian, Associate Director of Structured Transactions & Advisory Services, said Build-to-Rent projects were being delivered across the country, with majority of activity in dense, urban locations like Melbourne and Sydney.
However, the Gold Coast and Perth have been among the first mover markets, with some of the first projects in these locations having now reached completion.
“Melbourne has been leading the way with its development pipeline, representing over 50% of the national market while Sydney captures just over 25%,” Mr Mollaian continued.
“The key to this trend of greater activity in Victoria has been the wider availability of suitable sites and generally reduced barriers to entry, when compared with Sydney.”
The report reveals that there has been a clear emphasis on scale and delivering large institutional-grade product, allowing owners to achieve operational efficiencies through economies of scale, with an average size of over 350 units per BTR project.
In another key takeaway, the yield gap between commercial office and residential has been narrowing – boosting the relative attractiveness of the asset class, given its innate defensive characteristics.
“As a result, a growing number of seasoned international institutional investors are diversifying their portfolios into the BTR sector and seeking exposure to this asset class in Australia, mirroring their substantial exposure across global holdings,” Mr Mollaian said.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.