BtR Development Surge Signals Sydney Market Shift

Sydney’s build-to-rent sector is gaining momentum as the New South Wales project pipeline overtakes that slated for Queensland.

Knight Frank’s Australia Build-to-Rent Update for the fourth quarter of 2024 shows NSW has 15,089 build-to-rent units completed, under construction or planned, compared to Queensland’s 14,390 units.

This comprises 3584 units completed or under construction in NSW, and 11,505 in the development pipeline.

Victoria maintains its position as the sector leader with 25,538 units, but Sydney is expected to take centre stage in 2025 as investors with established Melbourne-centric portfolios look to expand their presence across the Eastern Seaboard, the report said.

“Sydney has been slower out of the starting blocks compared to its Victorian counterpart, but build-to-rent development activity is now accelerating as investors look to gain a foothold in the city,” Knight Frank partner, living sectors, valuation and advisory, John Paul Stichbury said.

The national build-to-rent landscape shows significant growth since 2018, with 19,308 apartments either delivered or under construction, and an 40,191 planned.

Around 8900 dedicated build-to-rent apartments are currently under construction across Australia. Another 20,000 are approved for development over the next five years.

Smaller markets are also emerging. The ACT recorded 1723 units either completed, under construction or planned, while Western Australia and South Australia have 1568 and 1191 units respectively.

Recent legislative reforms have strengthened the investment case for build-to-rent developments.

“The investment case for build-to-rent has arguably never been stronger and this year activity will accelerate as we enter a rate-cutting cycle,” Knight Frank partner head of alternatives Australia Tim Holtsbaum said.

The sector has attracted significant international investment, including Japanese investor Nippon Steel Kowa Real Estate backing Lendlease’s 499-unit build-to-rent tower in Melbourne’s Docklands.

▲ Victoria’s build-to-rent market remains the market leader, but Melbourne investors are eyeing markets further north, the report said.

In Brisbane, the Ontario Teachers’ Pension Plan and Hines have acquired two build-to-rent assets from ADCO, including an 89-unit operational asset in Fortitude Valley and a 265-unit development in South Brisbane scheduled for completion in the first quarter of this year.

Development challenges persist, particularly in Brisbane, where new-build supply is expected to lag Melbourne and Sydney in the short term.

The report said that while larger platforms may consider diversifying into tier-two locations in the future, the focus remains on the Big 3: Melbourne, Brisbane and Sydney.

According to the report, the sector’s seasonal nature influences operational strategies, with peak tenant activity occurring in January and February.

Also, operators are more commonly offering incentives, such as a month rent-free, to accelerate lease-up rates, particularly during quieter periods.

The market faces ongoing challenges, the report said, with investment volumes in 2024 affected by the broader macroeconomic environment and government policy uncertainty.

Build cost inflation continues to pressure development feasibilities, although construction costs are expected to stabilise. Recent policy developments have also boosted sector confidence.

“After a long delay, critical legislative reform of build-to-rent tax policy has been passed by parliament,” Holtsbaum said.

“This signals to foreign investors that the Australian government supports and recognises build-to-rent as an important component of future housing supply.”

▲ The Westmead development, featuring 397 apartments across three buildings, represents part of AXA’s $4-billion global portfolio.

AXA IM Alts’ entry into the Australian market through Deicorp’s Westmead project in Sydney is an example of growing institutional interest in both premium and affordable build-to-rent segments.

“Australia is a great geography and we have strong conviction that affordable build-to-rent will provide a strong risk-adjusted return on investment,” AXA IM Alts head of Australia Antoine Mesnage said.

The report anticipates strong demand for operational build-to-rent schemes in the coming year, driven by scarcity and appetite for income-producing assets.

Stabilising construction costs are expected to improve development feasibilities and reduce perception of development risk.

Major build-to-rent projects under construction and due for completion between late 2024 and 2026 include Greystar’s $500-million South Yarra development to Lendlease’s Melbourne Quarter towers.