Institutional build-to-rent developments are gaining greater traction as a combination of market forces create perfect conditions for the sector’s growth in Australia.
Newly released analysis by Cushman & Wakefield forecasts the number of BTR units nationally to soar almost tenfold to 16,000 over the next five years alone.
Construction is set to peak this year as almost 12,850 units are built, while 14 major institutional investors develop 40 BTR projects between them. Currently, there only 1859 apartments operating throughout six build-to-rent projects nationally according to Cushman & Wakefield research.
Savills analysis in comparison predicts 2024 will be the height of annual delivery of build-to-rent units in Australia. This will coincide with both forecast record highs in immigration and the lowest point of new completions for residential stock since 2014.
Build-to-rent developments are designed as residential rental properties in perpetuity. All apartments are retained by the developer, usually a managed investment trust, making them particularly popular with tenants seeking the long-term stability of a home they will never be forced to leave simply because a landlord wants to sell or renovate. BTR developers also attract tenants to their residential complexes by including upscale modern amenities such as communal workspaces and cinemas along with hotel concierge-style services on site.
Driving forces
Looming housing shortages, rising rents and lack of affordable properties for new home buyers are among chief drivers of the strongest pipeline yet for build-to-rent developments, with projects planned for Victoria, NSW, Queensland and West Australia.
Victoria will hold two-thirds of the total stock of BTR apartments in Australia within the next decade to become “the epicentre of build-to-rent” said Cushman & Wakefield director of metropolitan markets Marcus Neill. The state currently has one operating BTR development.
State governments have come to view BTR as among solutions to the growing problem of housing shortages and have been offering investors attractive schemes and incentives as a result.
Rapidly rising rents are also creating a prime market of tenants for BTR, the hikes being caused largely by landlords and especially traditional mum and dad investors selling their assets to take advantage of increased buyer demand and healthy capital growth,
Covid restrictions which led to slowdowns or shutdowns on construction sites earmarked for residential apartment blocks and estates have further exacerbated housing shortages.
Savills analysis shows many developments delayed or abandoned due to the pandemic. The commercial property giant forecasts annual completions of medium and high-density apartment projects to fall further this year and into 2023, to be around 40% to 45% below the peak. This has been compounded by annual completions in September 2021 already being down 30% on September 2017, according to Savills data.
PropTrack economist Anne Flaherty said another factor working in the sector’s favour are the country’s healthy population forecasts, the national figure to rise by 3.5 million in the next 10 years and create greater volumes of renters. “Boosting the supply of rental accommodation will be essential,” Ms Flaherty said
Quick on the uptake
Institutions have been quick to take advantage of the surging momentum behind BTR.
A strategic partnership between M&G Real Estate and new platform Novus BTR was recently announced while a build-to-rent tower in Melbourne is to be backed by Invesco Real Estate.
Investment managers Macquarie Asset Management, BentallGreenOak and Partners Group have also recently entered the market joining the likes of Canada’s Oxford Properties and Singapore’s sovereign wealth fund GIC. The latter is particularly active in the Melbourne which has the highest volume of BTR projects of any capital city according to Savills analysis.
Melbourne’s inner northern suburbs is being targeted by BTR developers, one development group recently aiming to capitalise on this interest by putting a suitably zoned 1.32-hectare North Melbourne site on the market seeking more than $45 million.
Possibly prompting the listing was the recent $230 million purchase by US Group Hines of more than 3000 sqm of land for the construction of a build to rent complex. Local and Macquarie are planning a 424 build-to-rent complex in the same vicinity.
“Build-to-rent is a particularly attractive option for institutions such as large superannuation funds and property investment companies, seeking reliable, steady returns,” said Tim Dring, EY region banking and capital markets leader Oceania.