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SOUTH BRISBANE: THE RESIDENTIAL DEVELOPMENT SWEET SPOT

November 08, 2012

We are often in discussions with our active industry members who are keen to determine what is working in this patchy and fragmented development market. And while there are a myriad of reasons why many developments don’t get off the ground, at Ellivo we are more interested in why some projects are more successful in the current marketplace than others.

Increasingly over the last 6 months we have observed that well-designed and affordable medium-scale apartment projects in South Brisbane are achieving greater market acceptance than others (what we term the development ‘sweet spot’) because they better satisfy the demanding requirements of location, approvals, sales, financing, valuations, and speed to market. As with all developments, the success of any particular project requires satisfying current pent-up market demand within larger economic and social trends.

It is our opinion that boutique-style developments of between 35–50 apartments in the South Brisbane area are currently more successful than others because:

Location.

There is a growing realization that South Brisbane occupies a unique and desirable precinct with its unrivalled lifestyle offering combining arts, leisure and entertainment, as well as educational facilities for over 80,000 students. All within walking distance to the CBD.

Paul Barratt from CBRE advises that the South Brisbane rental market is particularly strong with sub 1% vacancy rates, a diverse tenant mix, and pent-up demand from owner-occupiers as well as investors. At Ellivo, we have observed that astute developers are also considering Woolloongabba and Kangaroo Point as strongly performing and desirable locations for their next project.

Demand.

Driven by location, investors and owner occupiers are striving to get into South Brisbane and anything sub $400,000 is selling direct to agent database prior to public release. Paul Barratt has seen the proportion of owner occupiers in the South Brisbane new apartment market skyrocket to as high as 50% in well-designed boutique releases. The Fish Lane development is a good example. This creates additional competition for investors and further tightening the vacancy rates as owner occupiers absorb the rental pool.

 

 

 

Fish Lane Dark Scheme Kitchen & Living Render by Simon Finger

Economic Drivers.

The multi-residential development market over the last few years has largely been driven by investors alone. However sharply rising rents and falling interest rates is now changing the sentiment around apartment ownership, driving some tenants to consider buying an apartment to live in. The other dynamic is the aging Baby Boomer market that considers owning a well-located investment apartment for the short-term (possibly used by their children when studying), but one that they could live in in retirement. Currently smaller 1 and 2 bedroom apartments are in high demand. High quality design and good location are critical factors here.

Approvals.

As outlined in a previous article, The South Brisbane Local Area Plan now ensured a high level of certainty that conforming developments will be approved without 3rd party objections and delays. This certainty cannot be underestimated in the context of Brisbane’s apartment market. For example, the recent apartment development of Bowen Hills was largely driven by a rapid approval framework from the ULDA rather than real development drivers.

Boutique Size Development.

There are a range of factors that make medium-sized developments of between 35 – 50 apartments up to 8 stories high more attractive and successful than larger or smaller offerings. These generally involve a quicker rate-of-sale, relatively easier construction financing, more affordable Body Corp fees, efficiencies in construction and building certification, as well as an enhanced sense of community. We have observed that Brisbane purchasers are reluctant to commit to larger projects possibly due to uncertainty over them proceeding, when a boutique offering is more attractive. The recently-released Edge Apartments is also worth a look.

 

 

 

Edge Dark Scheme Kitchen & Living Render by Simon Finger

The X Factor – Design.

A quick review of apartment layouts and designs will quickly identify whether the target market for a project is investors or owner/occupiers. There is no doubt that financial returns drive the investor market, targeting investors who will never live in the apartments they purchase.

In contrast, owner occupier-designed buildings are usually well-considered, with light, views, airflow and energy efficiency all strong selling points for those who will live-in an apartment for years to come. Fixtures and finishes in an owner-occupier building are selected for their appeal and quality, knowing that the aesthetics need to be of higher quality to get a buyer to commit.

The exciting design challenge is to create apartments that are affordable to construct but which have a higher level of amenity that appeals to owners as well as investors. Again, Paul Barratt observes that:

‘as the new unit market in South Brisbane flourishes, buyers are seeking a quality facade which contributes to a sense of address and provides for an immediate lift in status and prestige for owners and residents. Thoughtful design detail adds value to the buyer and increases the rate of sale due to aligning product with buyer preferences.’

We will be following up this article with future commentary on the Brisbane Apartment market in the context of Melbourne and overseas trends, and the increasing impact of pre-fabrication on apartment design and construction.

Article written by Scott Whiteoak, director at Ellivo Architects.