The Covid-19 crisis is likely to cause more delayed or abandoned apartment projects and in turn cause underlying growth to halve in 2020 with further declines of 25 per cent on the horizon in 2021, JLL says.
JLL's latest residential apartment market report found that the amount of inner-city apartments under construction across the major capital cities fell a further 5 per cent over the first quarter of the year and is now trailing its mid-2018 peak by 30 per cent.
Completions in 2020 are now expected to be about 37 per cent below 2017 levels and fall further into 2021 to be almost 60 per cent below the peak.
The number of apartments being actively marketed also fell a further 11 per cent over the quarter to be 73 per cent below its mid-2017 peak.
JLL head of residential research Leigh Warner said that, despite broader confidence growing across residential markets, developers were still doing it tough.
“The fall in the number of projects being marketed has been telling us for quite some time that we would have lower levels of new supply over the next few years.
“The current uncertainty is going to make it difficult for buyers to commit to a project several years away from completion and we are now likely to see more projects delayed or abandoned and supply stay at very low levels in 2022 and 2023.”
National apartment supply pipeline
^ Source: JLL Research, as at 1Q20
Warner said while Sydney’s apartment supply pipeline will continue to fall sharply, the market was still in the process of absorbing the tail end of the last large supply pipeline.
Completions in Sydney are expected to fall by 47 per cent below 2019 levels and 63 per cent below 2018 peak construction levels.
“Apartment completions increased year on year in the first quarter of the year but overall completions will decline in 2020,” Warner said.
While price growth remained resilient across April, lifting by 11 per cent, auction clearance rates across the city which have now fallen to be between 30 and 40 per cent and will likely translate to imminent pricing declines.
Sydney's gross median apartment rental yields have remained unchanged for five consecutive quarters, sitting at 3.9 per cent.
Australian inner city apartment market supply — under construction
^ Source: JLL Research
JLL highlighted that Melbourne's pipeline has remained robust, with 6,000 apartments approved in the 12 months to February, reflecting a 21 per cent year on year change.
Despite this, Melbourne's apartment supply has shown signs of slowing and the levels of new commencements have begun to decline as a result of the coronavirus outbreak.
Annual completions are now expected to total 8,000 apartments across the city, approximately three-quarters of the number of apartments completed in 2017.
Melbourne's apartment rental market, which was relatively tight prior to Covid-19, saw vacancy rise marginally to 2 per cent over the first few months of the year.
“Price growth has slowed, but to date remains positive. However, this will be tested over the next 12 months,” Warner said.
“The rental market should steadily improve over the next few years after the initial impact passes.”
JLL noted that gross rental yields for Melbourne apartments fell marginally over 2019 as a result of price growth, with rents increasing modestly.
Australian inner city apartment market supply — currently marketing
^ Source: JLL Research
Brisbane is expected to see 1,550 apartments completed over the year, 44 per cent lower than 2019 and 85 per cent lower than its 2016 peak.
“Prior to Covid-19, the Brisbane Apartment market was on the cusp of recovery,” Warner said.
“Supply is likely to remain very low over the next few years, with Covid-19 likely to see further projects delayed and abandoned due to demand uncertainty.”
Warner said that while Brisbane's pre-sales demand remains soft, the city's stronger local economic and population prospects, along with generally high market sentiment, is expected to see demand rise over 2020.
Apartment prices have continued hold, growing moderatley by 0.5 per cent over April to be 2.3 per cent higher over the year.
“At the same time new supply has slowed enormously since peaking back in 2016 and the market was set to swing into under-supply,” Warner said.
Brisbane will also be affected by the fall in population growth, but buoyed by a lifting of travel restrictions that will drive inbound domestic tourism at a time when overseas travel remains off limits.