VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Daniel Philip What are some innovative strategies or approaches that property developers in Melbourne are employing to meet changing market demands?
land - rich sites with existing improvements that have the ability to provide income or to be repurposed. We are seeing this in the industrial sector with older, large format warehouses that typically have a higher site coverage, being renovated and carved into smaller units. In addition, the adoption of the storage / mancave product that has also been incorporated to commercial and industrial developments both on grade and underground which has essentially doubled the amount of site coverage for some projects and therefore diluting the high land rates that were being achieved. There has also been an increased number of whole apartment blocks that have been offered to the market in the past 12 months. We have been involved in several sales in both the inner city and suburban areas and the volume of enquiry has been outstanding. In light of the current housing crises and sheer lack of supply , we are experiencing appetite from developers from both small to large scale to acquire these blocks often below replacement costs with the concept to undergo renovations and upgrades before releasing to the market. The “build to rent” sector is also resulting in increased levels of buyer demand. Largely due to various government support and subsidies in streamlining the planning process and land tax concessions. The model offers developers a more stable, low risk and steady return due to longer lease terms with security of tenure. With this we are seeing appetite from both private and institutional buyer profiles. This sector is relatively new in Melbourne and we are still waiting to see the direct benefits and product delivery of this model. How does the presence of key amenities and infrastructure, such as public transportation, schools, and healthcare facilities, influence property development and investment in Melbourne?
In the commercial sector, we have certainly seen a shift in the way businesses operate across a range of industries. This has been quite prevalent in the commercial sector with businesses having to adopt more flexible working arrangements with their employees resulting in a reduction of office space they require. This has forced developers and investors to consider co - working spaces or to repurpose existing commercial buildings into more appealing office suites and flexible lease arrangements with their tenants. Additionally, better amenities are also much more of a consideration in this market to help further incentivise and encourage the commercial sector to return to the office and absorb the current high vacancy rates. In the industrial sector we have seen unprecedented appetite for occupiers seeking smaller industrial buildings of circa 100sqm – 500sqm. The typical user pattern for this type of asset has expanded dramatically to more of a commercial / hybrid style user which has resulted in developers needing to provide higher quality buildings and fit outs. From an agency perspective, the increase in cost to provide a higher standard of building has certainly been justifiable as industrial rates are surpassing commercial rates in some regions. Are there any emerging or untapped markets within Melbourne that property developers are starting to explore, and what factors make these areas attractive? The rapid increase in the cash rate, construction costs and labour has seen a decline in developers who were previously acquiring raw land and having to go straight to planning. Coupled with the scarcity of well located land and rise in costs, now in high demand are
DANIEL PHILIP Director CVA Property
38 – July / August 2023
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