APPD Market Report Article
BrisbaneSeptember 4, 2023
Leigh Warner, Senior Director - Residential Research, Australia
Demand still focused on owner-occupiers
- Strong local population growth is a major headwind for underlying apartment demand. Nevertheless, apartment pre-sales demand remains very mixed. There is still strong demand from owner-occupiers, particularly downsizers, for quality apartments in smaller developments, located in prime locations.
- In contrast, investor demand remained muted, although that is slowly recovering. Investors are starting to see the underlying supply shortages in the Brisbane market, and the strength of the rental market as well as the relatively high gross investment yields are steadily generating more investor interest.
Supply imbalances worsen
- Only around 1,000 apartments completed in Brisbane in 2021 and 2022, compared to a peak of 7,000 in 2016. Supply is set to rise slightly in 2023, yet few large projects are commencing and the supply level is expected to remain moderate. With building contractors focused on infrastructure projects for the 2032 Olympics, securing a builder for residential apartment project has become difficult.
- Rental vacancy in Brisbane has been low for an extended period now, recording at 1.0% in June 2023. Vacancy is now low across all product types and most parts of Brisbane, and market displacement levels are high.
Rental pressure remains immense
- The pace of rental growth in Brisbane has been strong for several years now and while it is starting to slow, rents are still rising quickly. Asking rents for 2 bed apartments are up by around 18% the past year and much higher than before COVID-19. Affordability of rents is now likely to be the main constraint on further growth.
- Brisbane existing apartment prices have now risen four consecutive months to June 2023 and are 1.5% higher over the past year. Higher construction costs are putting upward pressure on pre-sale prices, but this has largely only been achieved at the higher end of the market at present where demand is stronger.
Outlook: Momentum to build up further
- Apartment demand is likely to gain momentum over the next 12 months, underpinned by continued strong regional population growth, the relative affordability of apartments, plus the likely return of investors to capitalise on the strong rental market conditions.
- With supply levels likely to remain moderate for some time, Brisbane is expected to move further into under-supply, and this along with higher construction costs are likely to support robust medium-term apartment price growth. Stresses in the rental market are also likely to remain intense.