Australia's build-to-rent market estimated to exceed $10b

The pipeline grew by a massive 68% over 2020.

Australia’s Build-to-Rent (BTR) pipeline has expanded by 68% over the past year, with 40 projects and the total number of units approaching 15,000 – a new high for the asset class.

This is one of the key highlights in CBRE’s new Build-to-Rent Development Pipeline report, a half-yearly profile of supply and development projects across Australia.

As the pipeline continues to expand, the aggregate size of the market is currently estimated to exceed $10 billion, with an additional $3-5 billion in projects currently under consideration or at various stages of due diligence.

This follows a 28% increase in new projects in the second half of last year relative to the first six months of 2020.

Of the 10 projects announced in the past seven months (totalling over 3,300 new units), six were secured by sponsors who already had one or more investments in BTR in Australia indicating increasing levels of interest.

At present, 11 groups are currently developing more than one project and have committed significant resources to the sector.

Puian Mollaian, report author and CBRE Associate Director of Structured Transactions & Advisory Services, commented that offshore institutional funding accounted for circa 57% of the total pipeline.

“Global investment in Australia’s BTR sector has been driven by the asset class’s stable cash flows in a low yield environment,” Mr Mollaian said.

Melbourne continues to lead the way with its development pipeline representing over 50% of the national market – with its milestone first project hitting the market in 2021 – while Sydney accounts for approximately 25%.

Activity in Queensland is gaining momentum on the back of private sector investment, as well as State Government incentives; namely through the BTR Pilot Project, which has already facilitated two projects.

“Victoria and Queensland are generally supported by greater availability of suitable development sites and lower barriers to entry, in comparison to Sydney where site values remain comparatively elevated,” Mr Mollaian explained.

Andrew McCasker, Pacific Managing Director of CBRE’s Debt & Structured Finance business, commented that the ability to secure favourable debt financing terms remained a critical enabler for BTR projects.

“In this regard, it is encouraging to see new dedicated products tailored to this market, with larger allocations of capital being made by both traditional lenders, the big four Australian banks, as well as non-bank lenders such as insurance groups, private equity and private credit funds,” Mr McCasker said.

“We expect funding appetite to increase as the asset class, and knowledge of the industry, evolves and matures in Australia.”