SA MARKET OVERVIEW
SOUTH AUSTRALIA
Jack O’Leary - Director - Sales and Investments Capital Markets | SA | JLL Adelaide
access to schools, education and other key services Developers are still actively seeking opportunities with new entrants looking to enter the SA market with Adelaide seen as an attractive alternative to Melbourne and other areas for a number of groups that it had not previously been on the radar. There’s a number of challenges and pressures facing developers, not least the cost of construction, cost of capital & availability of land - what’s your gauge as to how developers are mitigating some of these issues? The non-bank lender has been on the rise as an alternative to traditional bank financing options. A method that has seen significant traction due to its agility, innovation, and accessibility to borrowers. With an industry worth $74 billion, a continued rise in developers using new methods of borrowing and funding projects is all but certain. This has mainly been due to the flexibility of the loans being tended to the needs of the debtor. In certain instances, we are also seeing developers negotiating more favorable terms or looking to unique transaction structures, potentially being able to offer a slight premium in order to de-risk a project upfront e.g purchasing subject to re-zoning or planning approval etc. We have also seen a number of more complex transactions such as Joint Ventures and Land Management Agreements where the owner may vend in the land for the project taking on some risk however be able to share in the development profit. As you know, the rise of build-to-rent (BTR) as an asset class has grown exponentially in Australia over recent years - how have you observed this trend & is there an opportunity for developers to pursue BTR projects from a residential land perspective? While there has been a lot of talk about it, the build-to- rent market has been relatively slow to evolve in SA. The relative affordability of the inner ring suburbs compared to the apartment market has made feasibility for these types of projects difficult. At present there is only 1 live BTR project in SA being developed by Sentinel in Bowden. This compared to Melbourne and Sydney representing circa 60% and 23% respectively of existing and approved BTR stock in Australia. The recent increase in median house and apartment prices in Adelaide over the past 24 months have placed significant pressure on home buyers and affordability.
Thanks for the opportunity to share your insights - to begin, give us a sense as to how you’re finding transaction activity for residential development land sites as we approach the mid-point of 2024? We are still seeing good demand for residential development sites throughout metropolitan Adelaide across traditional Build to Sell developers, Community Housing Providers, the SA Government and mixed used developers. It is fair to say that the increase in construction costs over the last 12-24 months has had an impact together with interest rates impacting the ability to service the sites in a timely fashion. We have seen an increased demand for low / medium rise sites in the first half of the year with metropolitan infill sites competing hard with commercial occupiers who have been displaced as part of the South Road compulsory acquisitions. We have also seen an increase in enquiry from Community Housing Providers (CHP) in partnership with ‘traditional’ developers to alleviate the affordable housing shortage in SA. As for medium rise and higher density development, demand has been primarily for the inner metropolitan and CBD and mostly sought after for higher end residential developments targeting owner occupiers and downsizers as opposed to investor grade stock. Clearly there’s an acute housing shortage across Australia - based on your conversations with developer clients, what’s their appetite for pursuing new opportunities & what are the underlying fundamentals they’re considering in their analysis? There is no doubt that the housing crisis is getting plenty of attention from the media including the development community and it is a key focus. The appetite remains optimistic however the fundamentals remain the same as always: • Increased construction costs, a lack of availability of trades along with increased interest rates and longer build times continue to impact on feasibility but there appears to be some more visibility than there had been 12-24 months earlier. • Opportunities with the strongest underlying attractors remain most in demand, such as; close to established public amenities such as parks, retail and recreation; good access to key infrastructure such as public transport or key transport routes; convenient
JACK O’LEARY
112 – June / July 2024
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