Build-to-Rent model gains traction in Australia with 8,000 units expected to be completed over five years

Savills reveals that Australia is closely following UK's decade-long Build-To Rent growth spurt.

Accelerated by the emergence of COVID-19, new ways of living and working throughout Australia are emerging and growing in popularity, at a time when people are increasingly becoming isolated and craving connection.

As such, Build-to-Rent (BTR) and Co-living; promising operational residential real estate sectors, are gaining traction across the development and investment community, with the Australian pipeline rapidly growing.

According to the latest research data from Savills Australia, a Build-to-Rent or Co-living asset has the potential to deliver that sense of belonging and connection through shared amenity space and resident community engagement.

Savills analysis of the Australian development pipeline, at the end of H1 2020, indicates that 2,326 Build-to-Rent units are now complete, and a further 611 units are operating as Co-living. An additional 895 and 389 Build-to-Rent and Co-living units respectively, are under construction. This is an increase of 730 BTR units at the end of H1 2019, or a 38 per cent rise over 12 months.

According to Conal Newland, Director, Student Accommodation at Savills Australia “Investors remain confident on the long term core investment themes of Australian residential rental accommodation.

“The proposed NSW planning changes are designed to simplify planning controls to support investment in diverse and affordable housing types including build-to-rent, co-living, social and student housing”.

The NSW Government has been quick to acknowledge the need to boost the housing construction industry since the onset of the downturn. The State Government announced a 50% land tax discount on new (post July 1 construction) purpose built rental units, to be managed under a unified single ownership and over a threshold of 50 units. An exemption from foreign investor surcharges will also be provided until 2040 for Build-to-Rent developers.

Mr Newland said the new proposals will ultimately create more options for investors and builders of developments and decisively more housing options. “The NSW Government is also exhibiting a new planning policy that includes proposed development standards for Build-to-rent projects across the state. It will include design guidance on context and character, sustainability and amenity” he continued.

According to Paul Savitz, Director, Student Accommodation at Savills Australia and author of the Savills Development Spotlight on Build-to-Rent and Co-Living report, Australia is hot on the heels of the UK's decade long Build-To Rent growth spurt, something that Australian and global investors and developers have been keeping a close eye on.

“There are currently just over 162,000 Build-to-Rent homes planned, 34,000 homes under construction, and 48,000 operational or completed homes across the UK.

“The future pipeline currently stands at over 80,000 homes, including those in the pre-application stage. Just over 35,000 homes have already gained detailed planning permission but have not yet commenced construction”.

Mr Savitz went on to say that this indicates a healthy supply of homes waiting to begin construction.

“In the first five years, from the emergence of the first Build-to-Rent scheme in London 8,000 units were completed. Savills analysis of the Australian Build-to-Rent pipeline highlights that the emergence of the sector will occur at the same speed as the UK equivalent, with 8,000 units completed over the same five year milestone.”

According to Savills data, over £10 billion (AU$18.4bn) in investment into the UK’s BTR sector over the past five years.

“The UK BTR sector is set to grow exponentially in value, rising from £9.6 billion in 2019 to a potential maturity of over £540 billion, providing homes for more than 1.7 million households.

“The current valuation is less than 1 per cent of the total value of privately rented housing in the UK, which is dominated by individual buy-to-let landlords.

“10 years ago, BTR was a niche topic at investment conferences and in boardrooms; now it is one of UK real estate’s most exciting asset classes. We expect Australia to follow suit.” said Mr Savitz.

So far, the Australian Build-to-Rent and Co-living market is small scale and fragmented, but development and consolidation is expected in the future, as has happened in the student accommodation market, which is now led by a small number of groups, often operating internationally and backed by global capital.

“A significant weight of capital is currently looking to enter the Australian Build-to-Rent and Co-living accommodation sector, but there are limited opportunities to access the market, the significant development pipeline, changing living trends, and materialising government support may open up greater opportunities” said Mr Newland.