The modest rise of Adelaide’s apt market

August 1, 2016 / By  

One of the major changes to residential markets in Australia’s cities has been the strong growth in apartment projects in recent years. In all markets, apartment numbers and market share have trended up. However, Adelaide and Perth are lagging the three larger cities, with apartment projects accounting for less than 20% of all dwelling approvals in recent years. By comparison, apartment approvals account for close to 60% of total dwelling approvals in Sydney.

Figure 1: Apartment approvals by capital city, Financial year data
Picture1_1Aug2016Source: Australian Bureau of Statistics (private sector building approvals), JLL Research

Figure 2: Apartment market share, Financial year dataPicture2_1Aug2016Source: Australian Bureau of Statistics (private sector building approvals), JLL Research

Despite this modest growth, there are positive signs that the market for apartments in Adelaide is growing. And small projects are emerging outside of the traditional apartment market of the Adelaide CBD.

One of the key drivers for recent growth has been state government policies to revitalise inner metropolitan areas. This has largely focussed on existing transport corridors, with rezonings now in place that allow for denser, mixed use development along main roads.

Case study – Prospect
The inner metropolitan council of Prospect has been the beneficiary of these rezonings, with small scale apartment projects being built along its corridors, notably Churchill and Prospect Roads. This region of 21,400 residents has grown by just 0.8% per annum over the 10 years to June 2015, but based on the current pipeline of development, growth is on the rise.

For the 11 months to May 2016, building approvals in the Prospect Council have totalled 231 dwellings (191 being apartments and townhouses), well up on the previous two years (120 in 2014-15; 82 in 2013-14). Furthermore, recent project announcements together with projects currently under construction reveal a pipeline of over 500 apartments that could be delivered in the next 2-3 years. Land owners are taking advantage of the stronger market conditions, by selling their family homes as development sites.

To date, Churchill Road has led the way in terms of taking up the rezoning. This is largely due to the affordability of sites compared with other urban corridors in metropolitan Adelaide. Development sites have transacted at around $900-$1,000 per square metre, with the rate per apartment averaging between $30,000 and $50,000.

The market, however, is price sensitive. Two bedroom apartments have averaged around $350,000, well below the median house price for Prospect Council of $580,000.

Future risks and opportunities
A risk for this price sensitive market is that competition is leading to strong price growth for development sites. However, this is not being met by similar growth in capital values, with the median sale price for apartments across Adelaide growing by 0.8% per annum over the last five years. This is expected to place pressure on the viability of projects, which may threaten the continuation of Adelaide’s inner metropolitan renaissance.

However, the Adelaide residential market has yet to see the same level of off-shore interest as Sydney, Melbourne and Brisbane. With these markets recently introducing a foreign buyer surcharge of 3%‑7%, some foreign investors may shift their focus to Adelaide.

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