By Larry Schlesinger
Friday, 02 March 2012
The growing pipeline of new apartment projects in Brisbane will be met by a rebounding appetite for rental accommodation close to the city, according to economic analysts and forecasters BIS Shrapnel.
In its Inner Brisbane Apartments 2011 to 2018 report BIS Shrapnel forecasts about 1,500 apartments to be completed in 2012 – more than double the 700 or so completed in 2011.
Completion will fall again in 2013 (though still above 2011 levels) but then rise again in 2014 and 2015 to a peak of 2,500 apartments, according to BIS Shrapnel.
High-profile inner-city Brisbane projects include Lend Lease’s redevelopment of the RNA showgrounds to accommodate a resident population of 10,000 people and a workforce of 8,000 people, Alex Perry’s designer apartment building on Ann Street (131 apartments) being developed by the Chrome Property Group and Metro Property Development’s 14-storey Brooklyn complex on Brookes Street (191 apartments), a joint project with Indian-based Pearls Australiasia.
According to BIS Shrapnel rising tenant demand will be underpinned by growing employment in the Brisbane CBD and CBD fringe areas as the Queensland economy begins to strengthen from its recent troughs.
Report author Angie Zigomanis says that recent high vacancy rates in inner Brisbane were due to a collapse in rental demand between 2008 and 2010 following the GFC, rather than a result of any excess building.
“Tenant demand was so weak that it was unable to even absorb new apartment completions that had fallen to 15-year lows,” says Zigomanis. “As a result, vacancy rates in inner Brisbane rose significantly, increasing to well above the balanced market rate of 3% in 2009 and 2010.”
But Zigomanis says the weak environment has created a “level of latent demand from potential tenants who would have otherwise been in the rental market and have delayed their move until they are more positive about their employment prospects, and consequently their ability to meet their rental payments”.
BIS Shrapnel says tenant demand in the inner-Brisbane apartment market is driven by two major groups: young (under 40 years old) white-collar employees working in the Brisbane CBD or CBD fringe areas, and students, who are predominantly from overseas.
And while growth in overseas student numbers is still expected to remain limited due to the high dollar, white-collar employment in central Brisbane is poised to recover quickly as jobs are created to support the rising investment in coal seam gas projects in regional Queensland.
“Together with the release of latent demand from those who have been sitting out of the rental market, this will drive a strengthening in tenant demand,” he says.
Zigomanis says due to a combination easier financing for developers and developers making alternative finance arrangements, an increasing number of projects now in the development pipeline are proceeding through to commencement and will result in an increase in new apartment supply.
However, many are not expected to translate into to new supply until 2013-14.
“Up to then, the rising tenant demand will cause the rental market in inner Brisbane to tighten considerably,” he says.
“The tightening vacancy rates will drive acceleration in rental growth for apartments, which in turn will result in improved yields and a strengthening in off-the-plan purchaser demand.
“Price growth will also follow as investors subsequently enter the market in greater numbers, particularly once there is evidence that the Brisbane residential market has bottomed out.
“The increase in off-the-plan sales will drive further increases in new apartment supply, although it will be beyond 2013-14 before new supply will have an impact on vacancy rates,” he says.
“Nevertheless, due to the double-digit percentage rises in both rents and prices leading into the GFC, the outlook for rental and price growth over the next few years will be more moderate, with both rising in line with income growth – that is, in the mid-single digits per annum range on average.”
A recent report by valuation firm LandMark White warned that a combination of too many projects and historically low demand could result in oversupply of new apartments in inner-city Brisbane suburbs like Fortitude Valley and Bowen Hills.
The latest figures from the Real Estate Institute of Queensland for the December 2011 show that rental vacancies in inner Brisbane increased from 1.4% in the September 2011 quarter to 1.9% in the December 2011 quarter, while the overall city vacancy rate remained unchanged at 2.3%