Issue 34 | The Property Development Review

NSW MARKET OVERVIEW

NEW SOUTH WALES

NSW Market Overview with Anthony Pirrottina What were the key market trends occurring throughout 2021 in your region?

2022, leading to a slow down in the number of commercial investments being transacted. What have been the fundamental drivers of demand amongst buyers in the last twelve months? Throughout 2021 buyers still had a ‘fear of missing out’ which I believe peaked in November 2021. Commercial auction clearance rates remained very high, with a number of properties we were marketing selling 10%+ over the vendors reserve price. This was mainly due to low cost of debt, a period of sustained increases in property prices, and a fear that inflation would erode investors savings if they remained in the bank at low interest rates. The start of 2022 has been in stark contrast to this, with purchasers now much more wary of deploying their capital, instead seeking to ‘watch and see’ how the Reserve Bank’s change in monetary policy impacts the market. Reflecting on recent transactions, what has been the profile of buyers and has this shifted from previous years? Most recently we are seeing local purchasers dominate the market. Offshore capital into Australia has slowed significantly, with established private purchasers (both developers and investors) being the most aggressive in the market. Interestingly we are

2021 was a very strong period throughout the Inner West and South of Sydney, spurred by low cost of debt and ease of accessibility of capital. This drove the investment market to continue to perform well, though increasing cost of construction significantly slowed the development market. With the value for completed residential stock having slowed and in some markets fallen, a 30% increase in construction costs across the board made development site sales difficult to substantiate. This trend has continued throughout 2022, with increasing cost of capital leading to increased holding costs and slowing demand for development sites unless they are priced accordingly. As a result, we are seeing a significant reduction in the number of development sites being transacted and new projects being commenced, which will likely lead to a large undersupply of apartments in 18-24 months time. Similarly the commercial investment market has slowed, due to increases in cost of capital and widespread media speculation of an impending recession. The increasing cost of debt finance has reduced the capacity of purchasers to support the record low yields which were prolific in the market from 2021-

ANTHONY PIRROTTINA Joint Head of South Sydney Knight Frank

16 –July / August 2022

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