_Australia’s declining apartment pipeline
Knight Frank’s latest research has found Australia’s national apartment pipeline will plunge over the next three years, with just 86,400 new apartments planned across Sydney, Melbourne, Brisbane, Gold Coast and Perth, a significant 36.1% decline from the 135,300 new apartments built during the prior three-year period (2018-2020).
This forecasted ongoing decline in apartments comes in a year where the composition of sites purchased by developers for high-density projects fell from a share of 71.1% in 2019 to 64.1% in 2020.
In addition, total building approvals for new apartments dropped below 40,000 for the first time since 2013, with only 34,100 new approvals in 2020.
Although Sydney recorded the highest volume of high-density residential development site sales across Australia ($465.98 million), the apartment pipeline is still forecast to plunge by 2024. Factors to be considered include the time it takes to gain development approval in NSW for high-density raw sites and the number of pre-sales required to kick-off the construction to meet funding conditions.
The slowdown in apartment activity hasn’t stopped Melbourne from emerging as the focal point for new build-to-rent (BTR) activity, with more than 6,000 developments in the pipeline at the end of 2020, well ahead of Sydney with 3,300 and Brisbane with 1,600. By value, 11.1% of Melbourne sites were purchased last year with the intent to construct a high-density BTR product, well above Sydney at 0.7%.
The Gold Coast bucked the national trend of declining high-density apartment site sales across all major capital cities, recording a major 238% surge in major site sales purchased in 2020, while the sale of Brisbane high-density sites plunged by 86% in 2020 with a diminishing pipeline of just 6,075 new Brisbane apartments to be built by 2024, down from 13,850 in 2018-2020.
In Perth, demand for high-density apartment sites rose with annual sales turnover of 10.7% in 2020, as confidence increased among local developers given the shallow new apartment pipeline and rental vacancy has been trending below 1%.
Commenting on the Australian apartment projects market, Shayne Harris, Knight Frank’s Head of Residential said: “Developers across the country are continuing to shift their risk by diversifying their portfolios and as a result we’re seeing more focus towards owner-occupier boutique apartment developments.
“Although we’re in uncertain times, we can’t underestimate the impact investors will have on the high-density apartment market as they start to return across the country. It’s only time before they’re lured back to the new apartment market given the cheap finance, a thinning new supply pipeline and lowered residential vacancy rates.”
Knight Frank’s Head of Residential Research, Michelle Ciesielski said: “Across every residential market, there is always a submarket outperforming. Although we’re hearing of record sales being achieved in the upper echelons of the residential market, it’s the underlying mainstream residential market recording stronger growth than one year ago.
“The demands of apartment buyers are evolving. We already knew downsizers are most attracted to a three-bedroom configured apartment, but with the pandemic, there will be increased competition from other cohorts securing this third bedroom for the home office and potentially second living room, when required.”
Read Knight Frank’s 8th annual edition of the Australian Residential Development Review covering the key economic trends and drivers for low, medium and high-density:
To review the high-density apartment projects market for each city: