NSW MARKET OVERVIEW
NEW SOUTH WALES
David Hall & David Curtis - Cushman & Wakefield 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? David Hall, Cushman & Wakefield’s National Director,
development sites. In some instances, finance is very difficult to obtain without significant security” said Mr Hall. 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? Mr Curtis said “These pressures are very real and front of mind for developers. Some of the mitigants include structuring deals with extended settlement dates, reducing the size of developments to reduce the time to construct the built form, sourcing capital from non-bank lenders. “Other pressures facing developers include tax issues (stamp duty, land tax, foreign investor taxes), builder solvency and labor shortages in key trades” he said. Mr Hall said “For Logistics & Industrial (L&I), the growth in rents has offset some of the cost pressures, and economic rents have had to increase in order to make developments feasible”. 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? Mr Curtis said “BTR is a well-known sector in other parts of the world, including North America and Europe, but is still emerging in Australia. The drivers of BTR remain strong – lack of general housing supply and a growing demand for this style of living. However it is complicated to build BTR at the moment. The cost of land (in a desirable area), the cost to construct, the starting rent and the growth in the rent are all key variables in a feasibility. Then you add in risks around tax, sourcing capital, builder selection, cost escalation risk and it becomes difficult to deliver an appropriate return for risk.“ Mr Hall went on to say Build-to-rent (BTR) remains one of the fastest-growing commercial real estate sectors in Australia and is currently valued at approximately $5.0 billion. “There is a significant amount of capital both domestic and global chasing BTR projects in Australia. “Fundamentals for BTR are favourable, supported by current vacancy rates. The lack of supply is unlikely to change in the short to medium term as dwelling construction has fallen while population growth has surged, thereby supporting further demand.
Head of Brokerage Logistics & Industrial – ANZ said “Planning constraints and elongated approvals processes are still concerning for developers when assessing sites and are holding up transaction volumes “The delayed delivery of supply is also impacting sales activity within the broader residential market, despite the ambitious housing targets set by the Federal Government. This has also coincided with a period of record levels of population growth. “A lack of services current/planned and undefined timing in relation to the delivery of mains infrastructure (water, power, roads, sewer) is creating further delays and uncertainty particularly in the outer sub-markets in Western Sydney” he continued. 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? David Curtis, Cushman & Wakefield’s Head of Alternatives Capital Markets Australia and NZ said “Housing shortages are a very real issue in Australia. Developers generally remain cautious however due to the current uncertainty in the economy, and the difficulty of making development feasibilities stack up.” Mr Hall agreed, stating that there is a strong appetite to acquire sites and pursue residential development sites, however the inflated costs of construction and elongated planning timeframes is causing a more conservative approach with the gap between vendors and purchasers widening in more recent times “Population growth in particular is providing developers confidence in the housing sector particularly in major markets such as Sydney. Despite higher interest rates, upward pressure on pricing has continued; while more recently, investor interest has increased, supported by vacancy rates being anchored at or close to record lows. “Government policy to lift housing targets is providing some confidence as to the hope that planning processes may speed up. “The inflated cost of debt (particularly on construction finance) is placing downward pressure on pricing of
DAVID HALL Cushman & Wakefield’s National Director, Head of Brokerage Logistics & Industrial - ANZ
DAVID CURTIS Cushman & Wakefield’s Head of Alternatives Capital Markets Australia
28 – June / July 2024
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