Melbourne in focus for build-to-rent developers

A series of new build-to-rent projects is emerging in Melbourne, as major developers converge on a sector primed for significant growth.

Melbourne-headquartered development giant GURNER recently announced it had linked up with global funds manager Qualitas, with the partnership set to become one of the biggest players in the rapidly evolving Australian build-to-rent scene. 

The partners have a 1,200-plus unit pipeline worth more than $1 billion, with construction of its first Melbourne project expected to start early next year. 

GURNER founding director Tim Gurner said the company had begun evaluating the build-to-rent sector around four years ago, when it was approached by a wealthy family with assets in the United States and Europe to be their local partner.

“We looked at it very seriously and formed a strong view that the returns simply could not compete with alternative uses like build-to-sell residential development, even on a risk adjusted basis at the time with the market running hot,” Mr Gurner said.

“But the recent market correction which has slowed supply significantly, falling interest rates and tax breaks from the government first in NSW and most recently Victoria which we had been anticipating for some time, have created an environment that is now primed for rapid growth and investment which has made the space overwhelmingly compelling.”

Mr Gurner said key market shifts that had made build-to-rent investment more attractive was the retreat of investors from key apartments markets, the withdrawal of international developers and recent regulatory changes.

“(Build-to-rent) is an asset class with a long-term outlook - and our long-term outlook for the property market across all of Australia’s major cities is very positive,” Mr Gurner said.

“Over the past five years, we have begun to hold a lot of residential property privately and it has been a great investment for us, so it is really just a very large extension of that investment.”

Mr Gurner said the trend for Australians to choose to rent as a lifestyle had been accelerated by the COVID crisis, and laid an important foundation for the build-to-rent sector.

Qualitas global head of real estate Mark Fischer said the company had invested heavily in build-to-rent projects internationally and had been seeking opportunities to enter the sector in Australia for some time.

The funds manager’s long history of investment in build-to-rent includes multi-family development across the United States, as well as Australia's first build-to-rent debt fund, which provides loans for developers.

Mr Fischer said the post-COVID-19 environment in AUstralia would likely be conducive to the growth of build-to-rent, with the opportunity considered to be “overwhelmingly compelling”.

“We estimate that in 2023, only 9,500 apartments will be delivered across Melbourne, Sydney and Brisbane,” Mr Fischer said.

“This is a drop of around 80 per cent compared to the past five years, when an average of 48,000 apartments were delivered per year in these three cities.

“While rental demand is softer in the immediate term on the back of COVID-induced lower net migration, there are structural demand-side strengths that can’t be ignored.

“Young, well-educated professionals are persistently prioritising lifestyle over home ownership, preferring comfortable, sustainable, well-located rentals over ownership. 

“And once the immigration tap is turned back on, net overseas migration is forecast to rebound to 200,000 per year by 2024.

“This combination of drivers makes this a compelling opportunity and we are excited to launch this fund”.

Meanwhile, Oxford Properties and Investa Office Management have acquired a site in Footscray, where they are planning to develop around 700 dwellings.

The acquisition brings Oxford’s Australian build-to-rent pipeline to more than 1,000 units.

Located on Footscray’s McNab avenue, the project is expected to benefit from its proximity to the Footscray train station and Victoria University, with the commute to the CBD just 15 minutes.

Oxford head of Australia Alec Harper said the project was in line with the United Kingdom-headquartered developer’s strategy to increase its exposure to Australia.

“Oxford has a strong track record delivering transformative build-to-rent precincts in the UK and North America. Leveraging Investa’s local market expertise and team, we’re confident Footscray will provide a new level of quality and amenity to Melbourne’s inner-city rental market.”

Investa’s chief investment officer, Peter Menegazzo, said Australia’s build-to-rent sector was one of the most attractive institutional investment opportunities globally.

“Pleasingly, Australian state governments are starting to realise the potential of the sector and the important role it can play in the COVID-19 recovery and in dealing with housing affordability issues,” Mr Menegazzo said.

“State tax reforms being considered or as is the case in NSW – being implemented, are removing a significant barrier for the sector.

“With a growing pipeline of projects and increasing interest from investors looking to make an investment into the sector, we are considering opportunities to bring in capital partners alongside Oxford’s equity to help fund the portfolio’s growth - underpinning Oxford’s commitment to build a significant build to rent portfolio in the gateway cities of Sydney and Melbourne.”