MAY 2018 BRIEFING: DEMAND/SUPPLY
The underlying demand for new apartment stock in inner Brisbane is estimated between 3,000 and 5,000 new apartments per year.
Brisbane saw 3,012 apartments complete in in 2015 and 7,064 in 2016 with approx 7,500 completed in 2017, however the cranes are starting to come down and not being replaced.
Apartment projects have been cancelled by the score, with developers struggling to raise project funding and finance, and with the talk of oversupply delaying or shelving many projects. Projects can take years to get going.
However, the Australian market has a great ability to "self-correct", mainly because developers have to use their own (or the banks) money to build, they cannot use clients money through progressive payments.
This has the effect of developers not proceeding with new projects unless they are completely convinced their project will sell out, they can raise the money, and there is demand.
This often creates windows of opportunity when developers are sitting on their hands, new projects are not forthcoming, there is strong tenancy demand, and prices have been held back, and rent returns are high.
Due to this lack of new project launches, future apartments are shown by independent researcher URBIS to decrease to 5,691 apartments in 2018, reducing to 2,352 in 2019 and only 396 apartments expected in 2020.
Underlying demand is estimated at 3,000- 5,000 apartments in inner Brisbane each year. So, if this scenario unfolds, it will coincide with the Sydney market peaking and Sydney investors flocking to Brisbane, all of which could put immense pressure on rental vacancy rates which would lead to rent increases.
Brisbane already offers investors among the highest rental returns in Australia at 5%, further increases in rental would increase these returns further for investors, bringing even more investors into the market at a time of little quality supply, which could easily mean price rises.
The Brisbane market is expected to heat up with the upturn expected to run until 2026.
Finally, interstate migration into Queensland and overseas migration has started a strong upturn and employment is growing and the economy is on an upswing.
Queensland in 2017 had the greatest annual inflow of residents from interstate of all states and territories and is at its highest level since December 2008.
Tenants are also moving from older projects and apartments, or poorly designed ones, into the fantastic brand new projects and developments that are showing 100% occupancy rates within weeks of coming onto the rental market, and with strong rental yields to investors of over 5%.
By 2019, the market will be a very different landscape with limited projects under construction and very limited new projects in pre-sales leading to an under-supply.