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10 development trends to ride out 2020

Crane on a Brisbane construction site
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High-density developments have dominated site sales in the past few years. Photo: Shutterstock

10 development trends to ride out 2020

Apartment supply is set to moderate, but projects are expected to get taller and individual dwellings bigger, according to a new list of 10 prominent development trends across Australian capital cities.

Apartment supply is set to moderate, but projects are expected to get taller and individual dwellings bigger, according to a new list of 10 prominent development trends across Australian capital cities.

Knight Frank this week released a list of the 10 most important factors for Australian residential markets for the rest of 2020, as markets begin to rebound from the uncertainty surrounding the global coronavirus pandemic.

Markets in Sydney, Melbourne and Brisbane have been forecast to experience slowing levels of apartment supply, with around 142,000 high-density dwellings under construction or being marketed and likely to be built by 2023 in those major cities.

That would be a 27.3 per cent plunge on the number of completed apartments over the past four years, Knight Frank said.

At the same time, projects are going to get bigger - with individual apartments to grow in size and towers to get taller.

Apartment towers in Sydney set to be developed over the next four years will average 14 storeys, up from nine levels between 2016 and 2019.

In Melbourne apartment projects will grow from 15 storeys to 16 storeys, while Brisbane’s projects will be two levels higher on average over the next four years, at 13 storeys.

Knight Frank's Michelle Ciesielski said the research showed detached homes were likely to get smaller, with the nation’s housing pipeline to taper off as the rollout of new blocks slows considerably.

Somewhat counter-intuitively, Ms Ciesielski said the size of the average block of land for residential development was likely to increase in 2020, building on a trend from last year where the average block size grew to 421 square metres, up from 417sqm in 2018.

Build costs are likely to rise though, with COVID-19 physical distancing requirements slowing construction on detached home builds and apartment construction sites.

The report said the cost of construction rose by 2.7 per cent in 2019, with that trend likely to continue this year as supply chain issues due to the coronavirus crisis push up the price of building materials.

Transactionally, Knight Frank said high-density development sites would continue to dominate total sales, with $4.04 billion worth of development sites changing hands in Australia last year.

“Towards the end of 2019, its was becoming less difficult for developers to obtain local finance, although it’s expected this may become challenging again as the months progress in 2020,” Ms Ciesielski said.

High density development sites accounted for 70.6 per cent of developer and investor sales in 2019, as Australians continued to move towards low maintenance living.

However, COVID-19 is likely to slow down offshore demand for development sites, continuing a falling trend that occurred over the last two years, even as the low Australian dollar makes local property more appealing for offshore buyers.

“With the exception of Greater Brisbane, all major cities saw less residential sites purchased by offshore developers, by value, between 2018 and 2019,” Ms Ciesielski said.

“Greater Melbourne (43.7 per cent) saw the highest share of offshore buyers over this time.”

Australian developers are expected to remain active, with 68 per cent of respondents to Knight Frank’s Wealth Report saying they saw development land as an opportunity, trending above the global average of 62 per cent.

Overall, Knight Frank said buyers were likely to become more risk averse in 2020, despite lower borrowing costs and record low interest rates.

“Until the full impact of the coronavirus is established, local buyers have become more risk averse, protecting themselves in the current economic environment,” Ms Ciesielski said.

“Many are sitting idle, neither walking away nor in a position to be lured by the availability and low costs of mortgage lending.

“With the sudden stop in the economy and rising unemployment as a consequence, most markets must be prepared for a price redirection until a potential uplift once again in 2021.

“In saying this, those with secured income streams, or now in retirement, remain active in the market especially when planning to rightsize into the limited product when it becomes available.”

Knight Frank’s top 10 development trends for 2020 are listed below:

  1. High-density sales continue to dominate total sales
  2. Less offshore developers buying sites
  3. Pressure on build costs and delivery
  4. Housing pipeline tapers while the average block of land increases
  5. New houses are becoming smaller while new apartments are larger
  6. Apartment pipeline moderates in coming years
  7. Projects to reach new heights with more apartments per project
  8. Population growth to pause
  9. Attractive currency play for offshore buyers
  10. Buyers becoming more risk averse, despite lower borrowing costs

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