The Supply Debate - Inner Brisbane

Apartment supply and oversupply is a controversial and topical issue across the Brisbane real estate industry currently. With continued record breaking quarterly sales rates being achieved for off the plan projects, multiple cranes in the air and development driving change in the Brisbane market – Brisbane has been put under the national spotlight.

Buyers and developers alike query when this cycle will turn. Our opinion remains clear – the opportunity for growth in the Brisbane market is high. Although there is a wide array of choice across Inner Brisbane, uptake remains strong, at levels almost 200% higher than the 10 year average. Regarding price, the Brisbane apartment market is yet to recognise any significant price growth, which is inevitable in the near term given Brisbane medians are now 57% below the Sydney marketplace.

The most sensitive investment statistic however, centres on yields and vacancy. As development is delivered, these are the ratios to watch. Vacancy in Brisbane today rests at 2.3% (SQM Research). A normal market is considered to be up to 2 weeks vacant a year (2/52 = 3.8%). To this end, Place Advisory believe that vacancy rates are currently still low – however this is expected to rise further in the coming 24 months as further stock is delivered. Yields however have begun to soften as tenants either enter the real estate market in this historically low interest rate environment (ie are now buyers), or shop around various rental opportunities.

For new projects, the greatest risk on occupation and vacancy is in the initial letting period following settlement, where large volumes of stock are released to the market. However as these are leased and the building relaxes the rental rates begin to recover. The greatest risk for investment property long term is the older suburban walk up and the mature lower quality/low amenity buildings outside of core infrastructure nodes. It is undoubtedly the case that there is a flight to quality in this space and if easily substitutable on weekly cost, new buildings will always win out.

Tying all this back to supply and oversupply – there are regions in Brisbane where it could be argued that there is an oversupply of certain investment stock and pressure will be placed on rents and vacancy. These are areas where significant apartment settlements have occurred in the past 2 years and are planned to occur in the coming two years, and this is not reflective of the market overall. What also needs to be identified is that there is a clear undersupply of good to high quality owner occupier apartments. This is the opportunity arising through the next cycle.

The following charts demonstrate regions where apartment supply has been focussed and how this translates into density and delivery of apartments to Inner Brisbane.