With the relatively strong pipeline of Build to Rent (BTR) apartments in various stages of planning and the reducing pipeline of Build to Sell (BTS) apartments, both these sectors are now being analysed as part of the broader Apartment market by the major research houses.
I attended a recent briefing by Charter Keck Cramer (CKC) Research & Strategy Directors Angie Zigomanis – Director and Richard Temlett – Associate Director for a very comprehensive and insightful State of the Market address for each of these sectors and a couple of things caught my eye.
Firstly, CKC show the average time for an apartment project to go from launch, to construction start, (selling period) has blown out from around 9 months in 2010 to 21 months in 2021. While this can be partly explained by the increase in number of larger projects, this trend still holds after eliminating projects with less than 50 apartments. This slow down in the selling process and lower level of presales adds significant holding costs to a project. Obviously BTR projects have no selling period as the entire marketing and presale process is removed.
The second thing I found interesting is the completion of BTS apartments in Melbourne is forecast to continue falling for the next two years into 2024. From the peak of 19,400 apartments completed in Melbourne in 2016 there is only 5,600 apartments that may be completed in 2024 including those in some stage of planning or construction. This is a 71% fall and the likelihood is not all of these will be built. This supply forecast is against a backdrop of the Victorian Government’s Plan Melbourne 2017-2050 which outlines housing forecast demand of approximately 16,000 apartments per year (based on population growth forecasts in Victoria of 90,000 people p.a.). This would create an apartment shortage from 2022 to 2024 of 24,200 apartments. (exluding any surplus stock preceeding this period). This will put upward presure on rental and capital values of existing apartments.
Keeping this number in mind CKC found there are approximately 6,340 BTR apartments in 18 projects at the approved stage in Melbourne with just over half in the Central City region. So BTR will not bridge the housing gap need for apartments within this time frame.
These numbers continue to point to an apartment market shortage over the next few years and while a rising tide floats all boats, the market is likely to discern between apartments of varying amenity, quality and location.