VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Julian Heatherich
What development sectors are most in demand? In the current market, we are seeing a typical flight to quality environment with permit approved sites in city fringe and inner ring locations being the highest priority among developers’ acquisition mandates. Transactional activity continues to be strong in this space, primarily driven by seasoned developers identifying the current market as an opportune time to buy and deliver the end product into a market with limited supply. The prestige/luxury markets in prime locations also continue to attract strong interest as perceived revenue characteristics are considered to partially mitigate recent delivery cost escalations. This segment also attracts high quality developers with a strong brand association in the market, which has become a prominent factor in acquisition decisions and therefore, the impact on development site values. Larger scale development sites (yielding 100+ apartments) are benefiting from the deepest pool of buyers, largely due to competition from the rapidly evolving build-to-rent operators. Development within the social infrastructure sector is absorbing stock in suburban locations and growth corridors, with premiums being paid compared to residential
developers. These markets continue to receive strong demand, driven by the increasing need for services, brought on by population growth and an ageing population. Childcare and aged care/retirement being at both ends of the spectrum are receiving strong government support. What do you see as the biggest challenges that face buyers and sellers in today’s market? There is concern from the market regarding rising interest rates, with the RBA’s Cash Rate increasing by 2.25% since the 6th of April, the steepest increase since 1994. There is a broad consensus that the cash rate will increase from the current level to around 3.75% by mid 2023. Despite this, borrowing remains very cheap from a historical point of view, and we see this mainly having effects on sentiment. Of the buyer groups we are dealing with, funding is not a major issue when compared to rising construction prices, which have seen unprecedented increases in the last 12 months. The rising construction cost will have a broad impact on the market in the years to come, as we do not see any real revision of land values or developer margin requirements. This provides a reasonably clear expectation that the greatest impact of rising
JULIAN HEATHERICH Director, Savills Melbourne
66 – September / October 2022
Powered by FlippingBook