Brisbane’s changing apartment mix

July 3, 2019 / By  

Brisbane’s inner city (0-5km) apartment market experienced a large supply boom that peaked in 2016. This supply boom was dominated by investors, both domestic and offshore. A combination of over-supply fears and restricted bank lending to investors and developers has seen investor demand slump and supply levels fall sharply. But, with owner occupiers now dominating demand, there has also been a more subtle shift in the future supply pipeline, changing the product mix toward these buyers.

Illustrating the magnitude of the decline in foreign investor activity, the Foreign Investment Review Board’s (FIRB) latest report, showed the fall in Queensland foreign residential investment from $16.9bn to $1.4bn. This equates to a 92% fall in the 2018 financial year from the peak in 2016. As such, the retreat of investors has improved the competitive landscape for owner-occupiers and provided more opportunity for first home buyers and downsizers.

This changing buyer profile has forced developers to take a harder look at the needs and motivations of buyers, and in many cases, adjust their product offering to better meet market demand and achieve pre-sales in a challenging market. This has become apparent in JLL’s Brisbane apartment market supply data, which has begun to show a shift in the configuration of apartments as a proportion of total stock (See Figure 1).

Figure 1 – Percentage of total stock completed 2016-2018 and
estimated change in stock composition 2019-2020

Source: JLL Research as at 1Q19

As investors have largely left the market, the provision of one-bedroom stock declined from 46% of total annual completions in 2016, to 40% in 2018. In 2019, we expect this trend to continue, with the proportion of one-bedroom apartments anticipated to decline to 36% of total product completed. While, conversely, most other stock types are increasing in proportion of total completions.

Many structural changes in demand are influencing this, predominately affordability pressures increasing households’ time in the rental market and the increasing acceptability of apartment living by all generations. In line with changing perceptions, the percentage of three-bedroom stock has been increasing gradually since 2016 (4%) to 9% in 2018 and an estimated 13% in 2019, likely driven by families increasingly adopting apartment living. Downsizer’s are also expected to drive consumption of larger apartments, reflected in the proportion of four-bedroom or penthouse stock increasing to 1% in 2019 and 4% in 2020 (See Table 1).

Table 1 – Percentage of total stock completed 2016-2018 and
estimated change in stock composition 2019-2020

While JLL’s data only provides insight into a small window of the market, anecdotal evidence suggests developers have already begun to further adjust their projects to meet escalating owner-occupier demand for larger apartments. Nevertheless, given the mounting decline in supply, paired with increasingly favourable population growth into Queensland, it is quite likely that current surpluses of one-bedroom and two-bedroom apartments will also be quickly absorbed. Furthermore, as affordability continues to be a key barrier to enter the housing market, it is likely apartment living will become increasingly attractive to younger generations in coming years. Consequently, with little investor stock coming to the market we foresee some stock shortages of all product types emerging over the next few years in the Brisbane market, and apprehensions shifting from over-supply to under-supply concerns.

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