The Development Digest | 17 August 2024

We are pleased to provide you with another edition of The Development Digest.

This update will cover:

• JLL Apartment Market Overview – Q2 2024 Summary
• Wingate Property Research Digest: August 2024??
• Headlines of the Week
• Current & Forthcoming JLL Development Site Opportunities????????????

JLL Apartment Market Overview – Q2 2024 Summary

The JLL Research Team have just released their Q2 2024 National and State Apartment Market Overview and Reports.

Over the next few weeks, the Development Digest will continue to explore key findings and themes from the research report to provide you with as much detail as possible.

We are pleased to provide our first summary of the report below:

Australia’s housing market has been resilient in the face of headwinds from higher interest rates and other pressures on household budgets.

• House price growth has started to slow but remains strong, supported by the imbalance between strong underlying demand from record levels of migration and muted housing supply.
• House price growth has become one reason for the RBA to delay cutting interest rates. Moreover, recent sticky inflation data and ongoing labour market strength have increased the case that rates may still rise again before coming down. While another rate rise is still less likely than not, the prospect of it or at least a delay in any cuts until well into 2025, may be enough to dampen housing market sentiment over the remainder of 2024.
• Conditions in the new apartment market remain divergent. Demand remains focused towards owner occupiers and particularly downsizers that are enjoying strong equity growth in their existing dwellings. This means sales within smaller high-end developments remain robust and these developments are seeing pricing uplift to compensate for rising development costs. Investor demand (foreign and domestic) is rising but remains subdued for new stock and this is keeping pre-sales rates for mass-market projects low and prices growth minimal. This means project feasibilities for developers are challenged and few large-scale high-rise projects are starting construction at present.

An apartment under-supply remains a major medium-term concern. Levels of completions are already low and with few major projects commencing in a still very difficult construction environment, it is clear supply is not keeping pace with underlying demand growth from a very strong rebound in migration.

• Many Build to Rent (BTR) projects have emerged over recent years in response to the urgent need for rental stock but BTR project commencements too have largely stalled the past year. Investors have taken a more cautious approach while they wait for important foreign investor tax changes to be finalised and required returns have also risen along with bond rates.

Wingate Property Research Digest: August 2024????

During the week, Wingate Property released their latest Research Digest: August 2024 Report and the JLL team have provided a summary below:

Population

According to the Australian Bureau of Statistics (ABS), population growth remains elevated at 2.5% over the 12 months to December 2023. Strong net overseas migration continues to be the principal driver of growth, adding around 547,000 people over the past year. In 2023, Australia's population growth reached its highest level since the early 1950s, making it one of the fastest-growing advanced economies over the past two years.??

Apartments

According to Oxford Economics, the national construction of build-to-rent projects fell by 19% over the 2024 financial year due to high borrowing costs and uncertainty surrounding tax policies for foreign-owned developments. Commencements dropped to only 5,290, compared to 6,543 the previous year. However, Oxford Economics forecasts a recovery by 2027, with commencements expected to exceed 8,000, driven primarily by Victoria, where land prices remain relatively affordable.

According to JLL’s Apartment Digest, there are circa 80,000 inner-city apartments in the pipeline, including build-to-rent and build-to-sell projects. These are at various stages such as under construction, being marketed, approved or with plans submitted. Melbourne and Sydney account for 60% of apartments under construction, with Sydney 31% and Melbourne 29%.?

Breaking down the apartment supply pipeline:

• 25% of those being marketed are in Brisbane
• 31% of those approved are in Melbourne
• 43% of plans submitted are in Brisbane

JLL reports that just over two-thirds of all inner-city apartment completions in 2023 were in Sydney, Melbourne and Brisbane. Sydney leading with 8,894 apartments, followed by Melbourne and Brisbane, with 8,243 and 4,504 respectively.??

Building Approvals and Commencements

• According to the ABS, total building approvals rose 5.5% during May, the highest since November 2023. Gains were underpinned by a 2.1% increase in private sector houses and a 16.3% increase in private sector multi-unit approvals. Over the past year, house approvals are up, and multi-units are down. In trend terms, there is a growing divergence between detached housing approvals, which are edging higher, and multi-unit approvals, which are falling.??To view building approvals by state, click here.
• Total building commencements rose 0.5% during the first quarter of 2024 to 39,715 (but remain 13.5% lower over the year). The quarterly rise was driven by a 4.8% increase in private housing starts to 25,072, which offset a 3.1% fall in private multi-unit dwellings.

Headlines of the Week

The AFR – Vibrant retail hearts buck the trend

• Prime CBD retail precincts in Sydney and Melbourne show resilience with vacancy rates of 5.4% and 10% respectively, despite high office vacancy rates.
• This strength is attributed to robust tourism, international brands, and improved public transport.

The AFR – Vibrant retail hearts buck the trend

• Prime CBD retail precincts in Sydney and Melbourne show resilience with vacancy rates of 5.4% and 10% respectively, despite high office vacancy rates.
• This strength is attributed to robust tourism, international brands, and improved public transport.

The AFR – Going for Goldfields

• Developer Goldfields plans to start construction on a $150 million mixed-use project in Richmond, Melbourne, next year.
• The 12-storey development will include 125 townhouses and apartments, targeting completion in 2027.

The AFR – Falling rents point to easing housing crisis

• Rents in Sydney, Brisbane, Melbourne, and Perth fell over the past 30 days due to stabilising vacancies, indicating a potential slowdown in the rental market.
• Significant drops occurred in Sydney’s northern beaches (3.5%), Gold Coast (2.4%), and various Melbourne suburbs, suggesting easing rental pressures.?

The Australian – Metricon back from the brink

• Metricon, Australia's largest home builder, reported a financial turnaround of nearly $80 million for the 2024 financial year, citing strong customer demand and improved efficiency.
• CEO Brad Duggan expressed optimism for the industry, noting interest rate cuts and stable material costs, though warned of ongoing high labor costs and rising home building prices.

The AFR – Is rent-to-own better than build-to-rent

• Sydney architect James Alexander-Hatziplis critiques the build-to-rent sector for trapping tenants in an expensive rental cycle and promotes his rent-to-own platform, Ownlea, for providing a pathway to homeownership.
• Others in the industry, like Assemble's Kris Daff, argue that multiple housing solutions are needed, including both build-to-rent and rent-to-own schemes, to address Australia's housing crisis.

Current & Forthcoming JLL Development Site Opportunities?

We are proud to be handling some of the most exciting development offerings in the market.

Should you wish to receive additional information or if you have a specific requirement or mandate you would like to discuss, please contact any member of the JLL team for a confidential discussion.

We hope you have enjoyed another edition of The Development Digest. Please contact our team if there is anything we can assist you with.

Jesse