Could apartments beat houses for long-term growth?

In fact, the most promising suburbs for future capital growth around Australia are in locations dominated by apartments: Greater Sydney, and inner-city areas of Melbourne, Brisbane and Perth.

Areas tipped to soon be on the rise for apartments include inner Brisbane, north Brisbane, the Gold Coast, Canterbury-Bankstown, Sydney city, and Melbourne city.

“Not only is price growth exceeding that of houses over the past 12 months, but also long-term average annual growth is higher in many apartment suburbs,” said Wilkins.

“The apartment market is gaining strength as a force for property investment and will continue to do so.”

Part of the momentum behind the acceleration of unit prices comes from supply limitations, with ongoing labour shortages putting a halt to new unit construction.

“The shortage of supply means there is unlikely to be any significant easing in vacancy rates or rents in the apartment [market] for the next five years, which is another reason why we are seeing more and more investors pivot to apartments,” Wilkins said.

But an upsurge in demand is also contributing to this trend.

One recent development in the apartment market that has contributed to the upsurge in popularity is the construction of large, luxurious apartments with the downsizer market in mind.

Terry Ryder, director of Hotspotting, explained: “Downsizers who want to leave behind the maintenance of a house in the suburbs for something that still comfortably accommodates them and their possessions now have a viable alternative.

“In fact, the impact of downsizers on the apartment market cannot be underestimated given the Baby Boomer generation is in the peak retirement phase and are looking to embrace a lifestyle that doesn’t have them chained to a lawn mower every weekend.”

Investors are also flocking to the market, according to Wilkins and Ryder, who cited the “winning trifecta” of affordability, yields and capital growth potential as key drawcards for this buyer group.

“The more affordable entry point generally means that rental yields are significantly higher for apartments – which is a key consideration in times of higher interest rates – and is why apartments are an important consideration for investors seeking opportunities this year,” said Wilkins.

Meanwhile, owner-occupiers have their eye on the off-the-plan apartment market, with this group comprising around 55 per cent of all buyers in 2023.

As Australia’s population continues to rise and construction delays persist, Wilkins predicted that the imbalance of supply and demand will have “a major influence on demand for apartments and the prices achieved in both the sale and rental markets over the next five years”.