Skilled Migrants Tipped to Drive Build-to-Rent Demand

The return of skilled migrants sparked by Australia's international borders reopening has been tipped as a driver for build-to-rent growth this year and into the next.

ABS data shows that 69 per cent of immigrants arriving in Australia in the past decade have a higher-than-average level of education, and therefore a higher earning capacity and income.

Domain’s chief of economics and research Dr Nicola Powell said the demand for rental properties would increase with borders reopening.

“Competition will escalate as international students, new migrants and expats relocate,” she said.

“This is likely to be further strained by demand from Covid escapees as some return from sea and tree change regions, which may result in further increases in rental prices.”

Low supply of rental properties is also driving demand, with Savills’ research showing that nearly 70 per cent of local government areas need rental supply.

A fall in construction completion, as the construction industry struggles with material cost blowouts, labour shortages, pandemic restrictions and supply chain issues, also plays into this shortfall. 

As well, there has also been an increase in investors leaving the rental market, selling their properties to take advantage of capital growth and the decline in demand from overseas investors after border closures and restrictions. 

“Rental supply remains short in many areas, providing little choice and strong grounds for further rental price hikes,” Powell said.

“Investors are returning to the rental property market to take advantage of these trends—this should help to slow down rent growth.”

New apartment construction was down by 30 per cent in September 2021, against September 2017’s pre-pandemic levels. 

Savills’ research forecasts it to fall to 40 per cent below the peak in 2022 and 2023. They also expect net overseas migration to increase by 25 per cent over pre-pandemic levels by 2024 and 2025. 

Melbourne, Brisbane and Sydney are all forecast to have population increases of 2.2 per cent, 1.9 per cent and 1.8 per cent respectively.

There are currently more than 5000 build-to-rent units under construction, with 2300 of those slated for completion in 2022.

There are currently more than 25,000 apartments in the pipeline for the next five years until 2026—60 per cent of them in Melbourne where rents have only grown by 1.1 per cent, according to Domain’s latest rent report but demand has not declined. 

▲ Melbourne's rental prices have not risen as sharply as other capitals but supply is low and demand is high. 

As some of the projects have not yet had planning approval, Savills predicts that 10,500 units will be available in 2024. This will coincide with migration increasing and low rates of residential stock completion. 

Sydney has the most barriers to entry to the build-to-rent market with the planning environment and the cost of land the biggest hurdles for investors. 

The interest in the build-to-rent sector in Australia appears to be under way, with two global players entering the market this month.

GreenFort Capital is partnering with Canadian property management giant BentallGreenOak and Swiss-based private equity firm Partners Group to invest in Brisbane’s build-to-rent market.  

GreenFort Capital partner Adam Vargelas said it was a good opportunity. 

“Australia has one of the highest rates of urbanisation and population growth, and one of the lowest residential vacancy rates in the developed world,” he said.