Apartment demand to stay strong, boost flagging development pipeline, JLL says

Apartment demand to stay strong, boost flagging development pipeline, JLL says

Rising population and denser cities will underpin continued demand for apartments, even though completions are likely to drop by more than one-third over the next two years, JLL predicts.

The pullback of both local and foreign investor buyers will dampen the construction pipeline as developers hold back even on approved projects – prompting completions to fall from a peak last year of 26,617 to 17,160 next year – but the demands of a growing population of mainly local buyers in Sydney and Melbourne and a recovery in Brisbane, will limit the decline, said JLL’s Australia head of residential research Leigh Warner.

“Investors have taken a bit of heat out of that inner city market and the focus is shifting to middle ring infill product more because it’s easier to fund, reach presales and targets a buyer market that’s still active – the owner-occupiers,” Mr Warner said.

There are already signs that the housing pipeline is holding up better than expected. New dwelling approvals rose an unexpectedly high 2.6 per cent in March.

But even though approvals – a leading indicator – do not necessarily translate into new projects, sentiment was holding up more strongly than expected, said Mr Warner, author of the real estate agency’s Q1 Apartment Market Report.

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Completions of new apartments were likely to peak in Sydney this year at 8946 and slip back to 6469 next year.

“The downward pressure will only last a year or so and then we’re back into a more positive market again,” Mr Warner said. “I expect headwinds to prevail through this year and into next year, with things starting to improve by the second half of next year and into 2020. We’ll be back to a more positive market by 2020.”

In Melbourne, where unit rents and prices remained above their five-year average, the volume of new completions – which peaked last year at 10,426, the most of any city – had not dented the wider apartment market.

The Victorian capital’s pipeline of projects – including projects completed, under construction, those currently marketing as well as those with plans both approved and submitted – stood at 69,700, more than Sydney’s 43,800 and Brisbane’s 34,700, the report showed. This included the loss of more than 9000 units earmarked in applications for the city’s Fishermans Bend urban regeneration precinct, because planning minister Richard Wynne’s decision in February to freeze them made it unlikely they would be completed any time in the next five years, Mr Warner said.

Mr Wynne’s decision may actually have helped strengthen the Melbourne apartment market, Mr Warner said.

“I can see that there is potentially a confidence boost locally from pushing that back a little bit,” he said.

In Brisbane, price growth was turning flat after a period of decline and the medium-term outlook for the economy in the Queensland capital – stimulated by mixed-use projects such as Queens Wharf – would soak up some of that completing new supply, he said.

“Prices are stabilising in that secondary sales market,” Mr Warner said. “There’s still a bit of supply to complete in this cycle but we’re through the worst of it. And there is a bit more confidence starting to emerge.”

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