THE PROPERTY DEVELOPMENT REVIEW
CAPITAL & CONSTRUCTION – WHO’S FUNDING WHAT IN FY26 NSW MARKET OVERVIEW
Adam Bodon | Managing Director - Adam Charles
What’s your current read on how capital is flowing into commercial real estate development in NSW heading into FY26? Are you seeing an increase or slowdown in funding activity compared to this time last year? We are definitely seeing an increased demand for viable class two projects in middle to inner ring markets, particularly those with a DA Approval. Established groups with proven delivery capability seem to have access to a wide range of debt an equity partners. We are also seeing lenders becoming far more competitive with their terms. Which types of capital are most active in your market right now — for example, private equity, family offices, non-bank lenders — and what’s driving their appetite? Predominantly private equity and non bank is driving is driving the demand in class two space. Despite a range of planning reforms, supply lines are still extremely tight and en revenues are now starting to grow. With a falling interest rate environment, the spread in values between house and apartment is likely to widen, which should result In continued growth in new apartment values. Which asset classes are attracting the strongest capital interest in NSW right now, and what’s fueling that demand? Is this a continuation of recent trends or a shift in focus? A noticeable shift in demand for DA approved stock, both co-living and apartment sites in middle ring suburbs. To capitalize on the pent up demand for price point stock and also is a relatively safe play due to a surge in rents over the past 3 years. Additionally, LMR provisions have provided a spike in future supply of premium stock > $30k p/sqm which has funnily enough made buyers now a lot more fussy in those areas.
Are there specific locations, or end uses that funding partners are prioritising in FY26?
Are you seeing a rise in alternative funding structures — such as joint ventures or private debt arrangements - becoming more common? If so what’s prompting this trend? We are seeing joint ventures emerging in two clear situations. 1. Stale sites in mid market where owners don’t want to sell/adjust expectation. 2. Land owners partnering with developers to submit an application to the housing delivery authority. It is becoming a viable option for owners who want to maximise their outcome and share some of the development risk with quality delivery partners.
Has there been increased interest from interstate or offshore capital, and if so, what’s drawing those investors to your market? We have noticed a marginal increase in offshore capital demand, however more so for completed assets/buildings for Build to rent. A lot of these groups are bypassing their local fund manager with a view to directly acquire operation assets. Our market fundamentals are still strong, with a limited future supply and expanding social infrastructure and steady population growth. All leads to stable and consistent growth and appreciation.
Three key themes, 1. Super premium downsizer product/ locations (primarily premium Eastern Suburbs and lower north shore suburbs). 2. DA approved mid-market sits ($15-$20k p/sqm GR), think Randwick, Marrickville, Chatswood 3. Co-living in mid-outer markets (think Summer Hill, Rockdale, Arncliffe, Homebush, Burwood)
How are tighter credit conditions and sustained construction cost pressures affecting funding models for new projects in NSW?
What are capital partners looking for in a project heading into FY26 — and are you noticing a shift in their expectations around feasibility or risk?
Over the next 12–18 months, where do you see the biggest opportunities or headwinds for developers seeking funding in NSW?
Credit conditions no longer a genuine pressure to sites getting started. Construction costs/Preliminary costs are still the largest cost pressure on any feasibility, particularly in middle markets. Anecdotal feedback is that it has stabalised, but most groups are still factoring in hard construction costs in the vicinity of $500,000 per apartment as a starting point. Are you seeing more conservative assumptions, delayed projects, or increased requirements around pre-commitments? Certain markets with revenues sub $12k p/sqm are pretty much not starting anymore. If so, its off the back of substantial equity contributions by the developer. Otherwise we are seeing most developers now opt to source slightly more expensive funding solutions to be able to sell most of their stock towards or after completion. This is due to high selling costs, increased spread in off the plan rates vs complete and likely appreciation over the course of construction.
ADAM BODON
As the amount of new starts has substantially dropped in the preceding 24 months, capital partners are deal hungry. There is still a desire to partner up with established groups with a strong delivery track record and we are seeing deal terms begin to sharpen, particularly for a quality approved site with a proven developer. Are you seeing increased interest from interstate or foreign capital, and if so, what’s drawing these investors to your market? Which regions or countries are most active, and what types of assets are they targeting? Foreign investment in Victoria remains subdued, with recent changes to the Absentee Owner Surcharge contributing to a shift in behavior among offshore investors. Rather than acquiring new assets, many of these groups have opted to divest and redeploy capital into alternative markets with more favorable tax and regulatory environments. It is interesting to note that the latest ANREV survey also showed that Melbourne was the second most popular location to invest in for international APAC investors (after Sydney) who are particularly looking for residential (91%) followed by industrial (83%). Australia per se remains popular in these volatile times. Over the past 18 months, however, we’ve observed a notable uptick in interest from interstate investors. As markets such as Brisbane and Sydney CBD experience renewed competition and tightening yields, Victoria is increasingly being viewed as a value opportunity. Interstate groups that were previously priced out of the Victorian market are now re-engaging, attracted by the yield spread and relative affordability compared to other eastern seaboard cities. This shift is helping to partially offset the decline in foreign capital and is contributing to a more diversified buyer pool in the current market cycle.
I still think co-living is the most attractive development outcome for middle ring suburbs. A lot of these areas are starved of future supply, and rents in this space are surging. These sites often look best in a feasibility and the ROE is often better than a typical apartment block, and often not a lot more equity required then a traditional class 2 development.
20 – August / September 2025
August / September 2025 – 21
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