Inner City Apartment Market Challenging for Developers

Inner city apartments markets have peaked but the contributing conditions will not sound a death knell for the development industry, according to JLL’s latest research.

More than 26,000 apartments were completed in 2017 across the inner-cities of Sydney, Melbourne, Brisbane, Perth and Adelaide – and JLL predicts a 20 per cent fall over 2018 based on current supply pipelines.

JLL’s latest Apartment Market report says that the supply data is based on what is currently under construction and being marketed.

Slowing investor demand and tightening lending conditions across all markets has dampened the residential construction pipeline, with completions to fall from a 2017 peak of 26,617 to 17,160 in 2019.

Inner city Sydney apartment approvals fell by more than 25 per cent over the year to February 2018.

Related reading: Australia’s Infrastructure Investment Wave Soon to Peak

Capital city apartment graph1

ABS housing finance data released earlier this month showed new lending to investors, in dollar terms, slid to its lowest level since January 2012, taking up 34.1 per cent of all loans.

JLL head of Australian residential research Leigh Warner said the results indicated there was is no doubt that with slower investor demand it was challenging for developers to meet pre-sales hurdles and progress the CBD projects that have typified this cycle.

“Many of these projects have already been postponed to later cycles, abandoned, changed to alternative uses, or substantially redesigned to be a more manageable size in the current market,” he said.

Related reading: House Prices in Australian Cities Less Positive in 2018: SQM

The softening market conditions for high-rise, investor-driven development means that developers can now change their focus to a higher-quality medium density product.
Brisbane Market

As inner city apartments reach their peak, developers have turned their focus to medium-density projects, often in suburban infill locations and with high quality finishes to target the owner-occupier market.

“The decline in the inner-city supply pipeline will be a much needed breather for most of our major markets and help them absorb the strong level of supply added over the past few years,” Warner said.

“But at the same time, strong population growth and the need to densify our cities, mean that we do need to keep building apartments or else supply will fall behind demand once more and price pressures will continue to plague our major cities.”

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