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Apartment Market Outlook Remains Strong

Apartment Market Outlook Remains Strong

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One of Australia’s most respected property services firms Charter Keck Cramer (CKC), has just released its half yearly “State of the Market” report for apartments in Melbourne, Sydney and Brisbane. It focuses specifically on the apartment market including both the Build to Sell (BTS) and Build to Rent (BTR) markets.

While increased interest rates and construction costs have created headwinds for the first 6 month of 2022, their outlook is positive.

CKC’s Director of Research and Strategy, Richard Tremlett leads the research team and the report highlights several issues and are paraphrased below.

Net Overseas Migration (NOM)

NOM will return to Victoria from FY23 onwards with a forecast growth of 65,300 people. Census stats show that migrants typically rent for 4-7 years so this is direct boost for the rental market.

Structure and Change in Living Preferences.

In the last 10 years the rental population for Melbourne has grown from 27.2% to 30.2% bringing it more in line with major US cities that have established BTR markets.

Also over the last 10 years, the percentage of apartments in Melbourne has grown from 3.6% to 7.7%

Construction Costs

The increase in construction costs has forced the delay or abandonment of many apartment projects. “This has the potential to cause rents to increase further given the existing shortage of supply of rental dwellings and ultimately translates into increased prices of new apartments across Melbourne”

Rising Interest Rates

Despite the obvious increase in borrowing costs, rising interest rates will push some owner occupier buyers to review their dwelling type and choose an apartment over a house.
Secondly, the likely rise in rents will help off-set the additional interest rate payments.
Lastly, for many private investors, negative gearing will help off set some of the increased interest payments.

The report also adds perspective of the drop in apartment supply. Looking at the charts, for the 4 years from FY2018 – FY2021 (inclusive) there were 64,500 apartments completed in Melbourne. In the following 4 years, CKC forecasts this to drop to about 35,900. (After removing some projects that are rated as only “possible” to be built.) This is a drop of 44%, or almost a half of previous 4 years supply.

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