Robust investor and developer demand has led to a strong investment volume in Melbourne, with new research revealing $2.6 billion was invested in residential development sites in 2014.
DTZ Research's new report Melbourne Residential Development Strategies shows that $2.6bn was invested in residential development sites in the CBD and inner-Melbourne fringe market across 171 transactions, with offshore investors committing a little over $1.0bn (40 per cent) across 47 transactions. Consequently, the average deal size of overseas investors, at an average of $22m for the year, was consistently larger than their domestic counterparts who registered a volume of $1.5bn at an average of $15m.
DTZ Director of Capital Markets Patrick O’Callaghan said development site demand was at an "all-time high" from offshore developers, a fact which was reflected in the enquiry numbers.
"However, local Australian developers are strong if not a little stronger for non CBD growth catchment locations, with local developers accounting for 60 per cent of development site transaction volume."
The report also reveals that there was a steady transition of certain household types towards living in flats and units over the past decade, with this trend predominantly concentrated in smaller household types, such as Lone person and Couple without children households. Given these trends, as well as the underlying population growth, there is population-driven demand for 35,000 units to 2021 and a further 54,000 units to 2031.
Dr Dominic Brown, Head of South East Asia / Australia & New Zealand Research and lead author of the report, commented: “At one end of the spectrum, young couples will continue to prefer unit living in light of the lifestyle choices it offers. At the other end, although many aged couples prefer to age ‘in situ’, there is growing evidence that downsizing is becoming more prevalent. Both these factors will lead to increased demand for apartments going forward.”
[urbanRelatedPost][/urbanRelatedPost]Analysis of supply shows that there are 93,000 units at various stages of planning or construction across 575 projects in the inner-Melbourne region. Final supply coming to market is likely to be considerably less than this, as some projects will not be able to secure finance for construction, or will try to be on-sold to a third party to bring the project to market. Furthermore, a proportion of units will be sold offshore and not be available for local demand. Reconciling all of these factors, the report estimates that there is sufficient supply of projects at all stages of the development process to meet underlying population demand for up to the next decade – i.e. 2026.
Mr O’Callaghan said: “The demand and supply imbalance is a matter of timing. If investors can secure sites with recurring income, they can ride-out the current supply pipeline until they find an appropriate niche in the market. Alternatively, they can look to non-CBD locations where land prices are lower and population growth is expected to be greater than the CBD.”
Dr Brown added: “Demographic changes in the market are shaping future residential demand. The increasingly ageing population is seeking appropriately styled and priced homes to which they can downsize. Furthermore, there is increased acceptance by families to live in higher density housing, especially in town-houses and medium density unit complexes. Combining correct product and timing will greatly assist in securing a project success”.