THE PROPERTY DEVELOPMENT REVIEW
to control costs in their projects. But there is a genuine prospect that factors like undersupply and lack of new starts of builds is going to lead to significant apartment price escalation, which could heighten buyer demand for these sites. The early signs of this are already being witnessed, with vacancy rates at pre-COVID levels in inner city markets, with rental growth being recorded. The apartment supply, if all new starts commence (unlikely), is also much decreased from prior years. • Continue confidence in the greenfield sector: Enquiry on our listings in this sector has not decreased at all over the past month. It has continued to be very strong. Costs have and will be much easier for developers to control, given these are limited to civil works. Notionally, you would expect interest rates to have the biggest impact on house buyers in this sector, but as it stands there has been median price growth in the greenfield sectors over the course of 2022 (in contrary established metro markets).
proposition. Equally interest rates with private funders do not always move like the big banks. Who have been key investors over the last 18 months, and have you seen a shift from previous years? The major change in terms of buyer profiles over the past 18 months has been in the build to rent space. Institutional capital has become the most aggressive buyer for significant apartment sites in an 18-month period. A lot of new entrants have appeared, as well as many local private developers securing capital ties to provide delivery and operational support of a build to rent platform. Previously, this scale of project was dominated by private developers for the preceding 5-10-year period. We are also witnessing many high density developers diversifying their offering to townhouse or greenfield markets. What is your prediction for the Melbourne development site market over the next twelve months? We expect the pursuit of quality sites to continue as an overriding theme, but to
quality has been much less sort out. We expect this trend to continue. The opportunity for buyers exists by targeting sites with a few challenges that the developer has the skill set to work through to enhance value. In terms of changing sentiment, enquiry on our apartment site campaigns has really strengthen over the course of the year. A lot of developers are of the view that there will be growth in apartment pricing over the next two to three years. And then on major apartment sites suited to built to rent, the level of institutional capital chasing that sector is creating a very strong market. What do you see as the biggest challenges that face buyers and sellers in todays market? Building costs. Increases in labour costs and supply shortages are leading to steep increases in construction prices and also creating challenges in the nature of contracts that builders
are accepting off, particularly in respect to liability in fixed price contracts.
Interest rates are not being raised by buyers too much. The reality is the funding market for development sites is so diverse now (with a lot of private funders), that that cost of debt is not as much of an influencing impact as you may think in the overall development
give some specific predictions: • High density apartment sites:
Building costs are the major disruptor and creating challenges for developers
April / May 2022 – 47
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