APPD Market Report Article


November 29, 2022

Leigh Warner, Senior Director - Residential Research, Australia


AUD 695


Australia’s most expensive market continues to cool

  • Sydney’s existing housing market has continued to cool quickly over recent months as higher interest rates bite. Apartment markets remain more mixed. Demand remains solid for new owner occupier stock in more premium inner locations, but is softer in Western Sydney and developer feasibilities are stretched.
  • Sales volumes declined over the quarter. Interest rate pressure and faster cooling of prices has made buyers cautious. Detached housing has felt the largest impact, but apartment pricing has remained more resilient due to a lower price point. As buyers are priced out of detached homes, their attention shifts to lower priced apartments to get into the market.

Supply remains limited across Sydney

  • A total of 1,422 units have reached completion this year across the inner Sydney apartment market. A further 679 units are expected to complete in 2022, likely marking the trough in the Sydney supply cycle. The future supply beyond this is beginning to build slowly, particularly in the inner south precinct which accounts for 29% of the pipeline to 2025.
  • Developer time frames are being stretched as shortages for labour and materials hinder timely completion. Moreover, development feasibilities are being squeezed as a slowing market encroaches on the ability to achieve necessary pricing levels. Many of the projects in the pipeline are at the plans-approved stage and are unlikely to commence construction unless significant pre-sales can be achieved.

Vacancy rates tighten

  • Vacancy in the Sydney greater metropolitan area has declined to 1.3%, which is a 1.4 ppts decrease y-o-y. A return to the office and lifting of COVID-19 restrictions has seen a 5.1 ppts y-o-y decrease in vacancy across the inner Sydney (2000) area. However, at 3.1%, CBD vacancy remains higher than all other Australian capital cities (SQM Research).
  • Due to tightening vacancy rates, rental rates across Sydney have risen higher over the quarter. Two bedroom units in inner Sydney fetched AUD 695 per week, a 6.9% q-o-q increase. This brings the annual change to 15.8%, a significant rebound from COVID-19 lows.

Outlook: Apartments supported by lower supply levels

  • Sydney’s high house prices make NSW the most interest rate sensitive state economy and the general tide will be a slowing one for Sydney housing over the next year as the full impact of higher interest rates are felt. Nevertheless, the relative affordability of apartments should push more demand into this segment of the market over the medium term.
  • The supply/demand balance is also supporting Sydney’s apartment markets. New supply levels are already low and are likely to remain moderate for at least several more years, while at the same time, the return of migrants and students will boost demand levels. The rental market is already showing this pressure and is likely to only tighten further as migration returns to pre-COVID levels.

Note: Sydney Residential refers to Inner Sydney apartments. Price and yield data sourced from CoreLogic. Rental and vacancy data sourced from the Real Estate Institute of New South Wales.

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