_How are the key development drivers performing for the Perth apartment market?

Overview

• There’s a growing positive business sentiment across the city, encouraged by the declining CBD office vacancy rate. 
• There is once again appetite for high-density development sites in Greater Perth, although funding remains challenging for most developers.
• There was a 46% drop in the number of apartments completed in Greater Perth in 2018, compared to 2017, and almost 1,400 apartments were placed on-hold, that were once being marketed. 
• In the inner suburbs rental market, more are moving from interstate and signing rental agreements (up from 14% in Q1 2018, to 19% of all leases in Q1 2019). 
• Tenants signing new leases worked in two main sectors being ‘resources’ (growing from a 17% share in Q1 2018 to 31% in Q1 2019) and ‘finance’ (up from 10% to 13% in the same period). This has contributed to the total residential vacancy falling from 5.5%, to 2.8%, over this time.

Development Site Values

In Greater Perth, there was a total of $96 million sites sold with potential for high- density residential development which transacted in 2018, almost double recorded than one year earlier (for sites greater than $2 million in value). Over the year ending December 2018, high-density site sales made up approximately 63% of all development site sales. 

The average sales rate for residential sites earmarked for high-density development across Greater Perth, excluding CBD sites, was an indicative $50,700/per apartment at the end of 2018; 3.9% higher when compared to 2017.

Over this time, the indicative sales rate for the inner suburbs of Perth grew by 2% to stand at $60,100/per apartment; to trend within a range from $45,000 and $95,000/per apartment. 

Similarly over this time, the middle suburbs of Perth (which captures coastal suburbs such as Scarborough) recorded a 13% uptick in indicative values to $48,700/per apartment (trending from $15,000 to $75,000/per apartment). However in the outer suburbs of Perth, at the end of 2018, a high-density site was likely to achieve marginally less than a year earlier from $10,500 to $28,000/per apartment, with an indicative of $20,800/per apartment.

Apartment Pipeline

A little over 1,900 new apartments were added to Greater Perth pipeline in 2018, down 46% from 2017. This fall in new supply coupled with increased activity from local and interstate tenants driven by the recovering finance and resources sectors, has aided the significant fall in vacancy from 5.5% in December 2017, to 2.8% one year later.

The inner suburbs of Perth continued to dominate completions in 2018, with 1,350 new apartments. The stock of apartments in the inner suburbs is projected to grow by another 2,250 apartments by the end of 2022—with those currently under construction, and an additional 1,200 apartments being marketed with DA approval, but not yet commenced. The Middle Suburbs saw 450 high-density apartments completed in 2018, with 2,650 under construction or being marketed with development approval due by the end of 2022. New apartments in the Outer Suburbs grew by 150 in 2018. By 2022, this is projected to grow by another 650 apartments currently under construction and being marketed.

To arrive at these estimates, the average marketing and construction timeframe of a similar-sized past project was taken into consideration. There is potential for an additional 2,400 development approved apartments coming on line by 2022 across Greater Perth. While the current pipeline has also taken into consideration almost 1,400 apartments which launched marketing campaigns in recent years, but now currently on-hold. 

Removing this stock from the pipeline could potentially result in an undersupply of high-density stock in the inner suburbs of Perth by 2021.