_What is the outlook for the Sydney apartment market?

Overview

• There are increasingly more Sydney sites once earmarked for residential being converted, or retained as refurbished office space, reflecting the tight current office vacancy rate. The volume of high-density residential development site sales was again lower in 2018 as a result.  
• The nature of site sales are changing, with collective site sales still being created, both vertically (encouraged by favourable strata legislation) and horizontally, with several property owners banding together.
• Funding remains challenging for developers in a cooler apartment market with 12,000 apartments once being marketed, have been placed on-hold with completion pushed out beyond 2022.
• Owner occupiers are now most active and developers are responding, with an increase in the number of bedrooms within apartments projected.
• A significant pipeline remains of major proposed infrastructure projects to 2030. 

Development Site Values

The sale of Greater Sydney sites with potential for high-density development totalled $2.2 billion in 2018, two-thirds the volume recorded the year earlier. High-density site sales made up approximately 78% of total development site sales over the year ending December 2018. 

Across Greater Sydney, the average sales rate for high-density residential sites was an indicative $198,300/per apartment at the end of 2018, excluding CBD sites. Reflecting the lower volume of sales, this indicative rate has decreased 10.3% over the past year.

In the inner suburbs of Sydney, the range extended from $200,000 to $600,000/per apartment with an indicative rate of $366,700/per apartment. Over the course of 2018, the range of development sites values for the middle suburbs remained at $160,000 to $300,000/per apartment, although the indicative rate fell 9% to stand at $192,000 by the end of the year. 

The top end of development site values in the outer Sydney suburbs compressed to trend up to $200,000/per apartment, starting from an average of $50,000/per apartment; with an indicative of $80,000/per apartment. 

Apartment Pipeline

Greater Sydney recorded the highest number of new apartments completed across the capital cities in 2018, with 30,900 apartments recorded over this time. At this time there were 49,800 new apartments under construction and a further 16,050 apartments with DA approval being marketed. An additional 11,950 apartments were once projected by 2022, and had reached their marketing stage, but have since been abandoned awaiting the arrival of more suitable market conditions.

The middle suburbs of Sydney continued to contribute the most new apartments with 13,750 apartments being added in 2018. Significantly elevated stock in the middle suburbs since 2017 has seen the vacancy rate reach 5.1% in December 2018, although there is some relief in store with the completion of new apartments to fall to 8,150 apartments in 2019. The inner suburbs saw 11,100 apartments completed in 2018 with 19,950 under construction and 3,500 being marketed due for completion by the end of 2022. The outer suburbs saw the new supply of high-density apartments grow by 6,050 since January 2018. By 2022, this is expected to grow by another 13,750 apartments under construction or currently being marketed.