Signs of Momentum in Australia’s Build-to-Rent Sector

For several years, investors have been debating whether the build-to-rent (BTR) sector in Australia will ever get off the ground and become established as an institutional-investment class as it is in other leading markets for commercial real estate. BTR — or multifamily as it is more commonly known globally — has long been the realm of small private investors in Australia. In the last couple of years, however, larger developers and investors, both domestic and from overseas, have embarked on several projects.

A surge in new development

Since 2020, construction has started on over 7,000 units across Australia, compared with fewer than 3,000 units in the years up to and including 2019. Several projects that commenced this year have long been mooted, including a three-tower, 700-unit development in South Melbourne. The project is slated for completion in late 2024. In Perth, U.S. and U.K. developers teamed up on a project set for completion in 2023.

Questions about whether the sector will ever become an institutional-investment segment have largely centered around tax issues and land being too expensive to achieve viable returns. To date, investors have focused heavily on Melbourne rather than Sydney, even though Sydney has a worse housing-affordability problem, according to government data, which would suggest greater demand for rental accommodation.

Reasons for the focus on Melbourne include the cost and availability of land. Development sites in Melbourne have consistently traded for around 40% less than those in Sydney over the last five years, according to MSCI Real Assets data, potentially making it easier for investors to clear their return hurdles. Around half of the BTR developments begun since 2020 are in metropolitan Melbourne, with construction of over 1,700 units starting in 2022 alone. The number of units set to complete in 2022 is over 3,500, which would mark the strongest year for new openings.