Apartment construction in both inner Sydney and inner Melbourne are on the rise, however investors shouldn’t expect the market outcomes to be similar, according to new statistics from a leading analyst and economic forecaster.
The BIS Shrapnel Inner Sydney Apartments 2012 to 2019 and Inner Melbourne Apartments 2012 to 2019 reports both forecast and have seen a pick up in apartment construction, however while the Melbourne market is heading into an oversupply, the Sydney market will remain tight.
The economic outlook that improved over 2009/2010 saw investors flood into the inner Melbourne apartment market, according to senior manager Angie Zigomanis.
“New apartment commencements have picked up significantly in both inner Sydney and inner Melbourne since their lows during the GFC,” said Mr Zigomanis.
“The pipeline of construction in inner Melbourne points to record levels of supply, while activity in inner Sydney is also coming to recent highs.”
While vacancy rates are still low in both markets, there still remains a question over Melbourne about whether demand can soak up the new supply.
With residents of this type of property broadly fitting into categories of either students, young professionals and empty nesters, the first two groups are that which drive the rental market.
“Apartment rent demand from young professionals experienced a setback during the GFC as employment in the financial sector declined. While this rebounded briefly as the recovery came through, growth has again slowed in line with the economy,” he said.
“Student demand has also weakened, although most of the reduction in overseas student numbers has taken place in the vocational education sector compared to the university sector, and with major university institutions located close to the Sydney and Melbourne CBDs, the softening in student demand has been less pronounced.”
Substantial supply is expected in the 2013/2014 time frame, when Melbourne will start to see the oversupply.
“The record levels of new apartment supply in inner Melbourne over 2013/14 to 2015/16 will push the market into oversupply and vacancy rates will rise.
“The high level of competing stock means that landlords will be unable to command the premiums that are traditionally available for new apartments, while owners of older established apartments will have to discount the asking rent on their apartments in order to compete,” he said.
This will occur while Sydney remains constrained, underpinned by its strong fundamental of a housing shortage, where despite the projected increase in supply the market will still be modestly under-provided for in 2016.
Mr Zigomanis expects that this environment will continue to support rental growth.