- The build to rent (BTR) sector could provide some relief to the rental crisis
- More than $15.85B is allocated or in the process of being raised for BTR
- Two thirds of European investors are likely to invest in BTR across Europe and the Middle East in the next 12 months
The emerging build to rent (BTR) sector could provide some relief to the rental crisis continuing across the country according to a new report from Savills, which revealed that around 40,000 apartments are either completed or in the pipeline.
The BTR sector is poised to benefit from growth in foreign investment and an increase in ‘forward funding’.
This year has seen sustained demand for investment in BTR. Savills’ analysis reveals institutional capital already raised, allocated, or in the process of being raised for BTR is currently in excess of $15.85 billion.
Savills Director of Operational Capital Markets Paul Savitz is hopeful this funding will help provide rental relief.
“Assuming that this $15.85 billion in capital is leveraged with debt, this could potentially support the delivery of 52,800 new homes by 2028,” he says.
“This will contribute to the government’s targets for housing delivery and help deliver much-needed rental housing stock to Australian cities struggling in the rental crisis.”
Paul Savitz, Savills Director Operational Capital Markets
“Increased investment from both global and domestic capital is needed to make a palpable difference to housing supply and tackling the inefficiency of taxes and planning could amplify the potential of Australian Multifamily.”
Rental demand continues to outstrip supply
The Australian rental market is currently underpinned by strong rental growth with demand far outweighing supply.
This has placed upward pressure on rental asking prices, as revealed by SQM Research.
Australia Weekly Rental Asking Prices
According to the Housing Industry Association (HIA), the number of residential dwellings under construction is expected to further decline until 2024. This decline in the construction pipeline is the lowest it has been since 2012, and it is having a flow-through effect on the rental stock.
The rental crisis is creating pain for those in the rental market, particularly low-income earners with only 1% of the rentals affordable for those earning a full-time minimum wage.
Rental vacancy in Australia is currently at near record lows with SQM Research’s latest data revealing only 1.1% of all rentals in Australia are currently available.
Australia Rental Vacancy
The return of international students and skilled migrants is reaching record levels, with 650,000 new migrants anticipated to settle in Australia over the coming two years.
Newland highlights that this coupled with the lack of additional rental supply, will put further upward pressure on rents, fuelling the rental crisis.
Build-to-rent resilient
The build-to-rent sector continues to be an appealing asset class despite current macroeconomic challenges.
It is finding favour with investors due to its ability to match inflation and its favourable structural trends.
Ongoing rental supply shortfall is bolstering the sector as well as growing demand from occupants, increasing migration following the COVID-19 pandemic, and difficulties in achieving home ownership in major Australian cities.
Savills Head of Operational Capital Markets Conal Newland, says the sector’s resilience within the current economic climate – in particular, its ability to match rising inflation – has allowed it to remain highly feasible.
“The rate of annual CPI reached 6.8% in February, compared to a 22% growth in apartment rents over the same period, while the transitory nature of tenancy allows investors to regularly rebase their rents in line with the market.
“Those who were already invested in [BTR] during this period have enjoyed increased rental income and high occupancy and lease up rates, which has exceeded the levels needed to compensate for higher operational costs,” Newland says.
Build-to-rent an in demand asset class
According to Savills’ Q3 2022 Investor Sentiment Survey, build-to-rent dwellings remain one of the most sought-after global asset classes. The survey revealed that two thirds of European investors are likely to invest in BTR, also known as multifamily, across Europe and the Middle East in the next 12 months.
These investors are now expanding their focus and exploring opportunities in Australia’s rapidly developing BTR sector.
Despite significant funds being allocated for BTR in Australia, the sector currently accounts for less than 2% of national investment. This is a far reach from other countries like the US where build-to-rent is considered a core mainstream asset class, averaging 35% of all transactional volume over the past three years.
According to Savills’ analysis, the institutional build-to-rent stock in Australia currently consists of 5,350 completed apartments, with an additional 8,400 apartments under construction.
Additionally, there is a future pipeline of 26,350 apartments, including those in the pre-application stage. This means that the total size of the sector is expected to be 40,100 apartments either completed or in the potential pipeline.
