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THE INTRODUCTION of BUILD to RENT in AUSTRALIA November 2019 Accelerating Success

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THE INTRODUCTION of BUILD to RENT in AUSTRALIA November 2019 Accelerating Success Research & Forecast Report Accelerating success. THE INTRODUCTION OF BUILD TO RENT IN AUSTRALIA November 2019 Accelerating success. MAXIMISE THE POTENTIAL OF DATA IN-DEPTH DATA At the forefront of the real estate industry, we Granular datasets covering historical understand the demand and forecast data with over 2,000 datapoints updated quarterly. for reliable and accurate data is more prevalent than ever. Our enterprising technology, Colliers Edge, offers comprehensive DETAILED property data that enables TRANSACTIONS you to delve deeper into the Australian property Individual reporting of market, using data to major transactions. become more informed and deliver enduring value. Colliers Edge is a data subscription service developed by our in- INSIGHTS house research experts, Our experienced research team who collaborate with will help you understand quarterly our National network changes, as well as broader themes of operators to drive behind each sector and market. exceptional results. Joanne Henderson Director | Research +61 410 391 093 [email protected] colliers.com.au/colliersedge RESIDENTIAL | Build to Rent Report | H2 2019 By John Nicolopoulos In the United Kingdom, the Build to Rent sector has grown strongly Manager | Research since its inception in the early 2010s, and as of March 2019, there [email protected] were approximately 32,000 completed units/homes, a further 36,000 under construction and 74,000 in planning (British Property Representing the largest percentage of global workforce by Federation). approximately 2025, Millennials are set to drive demand of BTR Despite this success, BTR initially encountered numerous challenges, development many of which derived from local authorities who struggled to differentiate the model from Build to Sell and affordable housing. The result was the inability to create viable BTR developments. Changes An independent BTR policy and taxation framework is needed to from government and authorities in relation to planning framework enhance opportunities for delivery of supply and policy (lowering tax rates on BTR investments) has since improved sentiment and feasibility. In recent times, the model has attracted high levels of institutional investors looking to capitalise on Opportunities exist outside CBDs where land is more affordable and a deficit of higher quality rental supply and to lock in stable returns. rental demand is strong Whilst the sector continues to expand across the UK, the momentum of BTR in London has been driven by the rising cost of home ownership, employment and lifestyle opportunities. What is Build to Rent? Build to Rent (BTR) refers to an alternative development model where a developer builds and holds the stock specifically for long term income-generating assets, opposed to the traditional Build to Sell (BTS) model. BTR is an established asset class in both the UK and USA, and as the ‘Australian Dream’ of home ownership has become progressively difficult, the model is beginning to garner interest throughout Australia. BTR is complex and there are a number of variables that will impact the implementation of the model in Australia. Despite the challenges ahead, opportunities do exist. BTR has proven to be a Global Success With the inevitable introduction of this new asset class into Australia, it is important we gain insights and learnings from the success of other international markets, especially the US and UK given the structural and market similarity to Australia. In the United States, where the size of the Build to Rent (known as multi-family housing) market has been growing significantly since the 1980s, over 14.5 million residences have been created. Currently, the sector represents the second largest asset class in the nation with the output of multifamily housing hovering around 300,000 units yearly. According to the National Multifamily Housing Council, the asset class also contributes US$3.4 Trillion to the economy annually, supporting approximately 17.5 million jobs. The strength of BTR within the US can be associated with the maturity of the market and levels of offshore capital being poured into the asset class (accounts for approximately 25 per cent of institutional property investment – second to office). A simpler planning framework, rezoning of regeneration areas and increased demand for city living have also contributed to the success. In the US, 36 per cent of households are inhabited by renters (over 43,000,000). If we look at the age distribution of these renters, 50 per cent are aged under 30, just over double the next highest age bracket of 31-44 years old (NMHC). This demonstrates the appetite for rental accommodation from Millennials and Gen Z. 3 RESIDENTIAL | Build to Rent Report | H2 2019 Source: ColliersInternational Growth Population Australian • • andCharges Taxes • Feasibility • Mindset below: explained are stakeholders amongst industry the mostprominent these, Of inAustralia. implementation ofBTR the impacting that are ofchallenges anumber are There inAustralia toovercome Challenges 4 '000 1 1 2 2 3 3 4 4 5 0 5 0 5 5 0 0 5 0 5 0 0 0 0 0 0 0 0 0 0 0 instead be held long-term, the developer will be unable to claimany will beunable the developer instead beheldlong-term, willthe assets notbesoldand Because development. residential as classified a iscurrently BTR development A years). 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Because land this amountdoesnotincur anything below that meaning is$692,000, threshold tax the land example, for InNSW tax will notapply. land where exemptions are there theland.However, valueof the reflects the sameasitpurely tax remains the of the application the dwelling, the useof of Regardless rates. andprogressive thresholds varying each with LandTax, anannual levy territories statesand Australian All classes. asset other by also soughtafter usually tag andare price withapremium all come hospitals etc universities, transport, the CBD, to Locationsclose expensive. extremely tofindand andMelbourne,isbothdifficult Sydney cities,especially Australian locationsacross Land indesirable of Australians. share anincreasing lifestyledecisionfor andconvenient secure a isnow that renting is to beshifted.Thereality still needs to homeownership stone beingashort-termstepping renting of Theperception rates. atrapid increased values have property difficultas increasingly hasbecome ofhomeownership Dream’ The‘Australian ofsuccess. level to one’s correlates ownership that home andbeliefinAustralia culture isastrong There 1982 T o 1983 t a l 1984 P o p 1985 u l a t i 1986 o n G 1987 r o w 1988 t h 1989 1990 1991 1992 N e 1993 t O v 1994 e r s 1995 e 2 a 2 s 6 1996 M i g 1997 r a t i o 1998 n 1999 2000 2001 2002 N a 2003 t u r a 2004 l I n c 2005 r e a s 2006 e 2007 2008 2009 2010 A v e 2011 r a g 2012 e 2013 2014 2015 3 7 9 A 2016 v e r 2017 a g e 2018 and completions remains lethargic, resulting in good news for ingoodnewsfor resulting lethargic, remains and completions newreleases outlookfor ofstock.Theoverall range diverse a more andsocialshiftsalsorequiring withdemographic housing increases more to provide the need to swell, populationcontinues As our cent). per (1.17 cent)andSydney per cent),Brisbane(1.18 per (1.24 Melbourne citiespost2025will all belocatedinAustralia; growing fastest three the 2018, UrbanizationProspects Nations World the United to 2017(ABS).According from centincrease a 2.8per (NOM); migration netoverseas ofwhichcamefrom people, 248,400 405,000 approximately by populationgrew life. In2018,Australia’s of quality educationandabetter opportunities, ofemployment search in economy growing toour flock asskilled migrants world developed the pacein the fastest at populationisexpanding Australia’s options housing driving theneed for dynamics andSupply Demand • Source: ColliersInternational Projects Active - CBD inMelbourne Completions Apartment Residential completion. reaches project marketed to 2023ifevery 2020 from completions in will centdecrease still bea77per there this increase, Despite forward. projects their to bring developers many forcing 2017, in July investors for concessions ofoff-the-planstampduty the removal to response the in2020reflect available.Thejumpincompletions less 2023assuitablesitesbecome toward diminishing pipelineofsupply canseea we Lookingforward demandlevels. ofoccupier strength the this stock,highlighting absorbed the market as trend downward their continued rates vacancy in2015and2016, levels completion Despiterecord annum. per completions 1,600 approximately decadeaveraging the current since1995,with annually completed been unitshave residential of1,010 CBDanaverage In Melbourne’s onrents. pressure upwards forcing accommodation, for competition ofdemandandamplified levels increased landlords; # of Apartment Completions 2 3 2 3 1 1 0 0 0 5 5 5 5 0 0 0 0 0 0 built student accommodation, retail, industrial, office etc). industrial,office retail, built studentaccommodation, (purpose- estateclasses real to other centapplied
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