Sydney set to steal the build-to-rent spotlight

While Melbourne remains the heartland of the build-to-rent (BTR) landscape in Australia, investors looking to diversity are set to shine a spotlight on Sydney’s development potential in 2025.

The latest Knight Frank Build to Rent Update, released Tuesday (28 January), revealed that the BTR development pipeline is most advanced in Melbourne followed by Sydney and Brisbane.

New South Wales has 3,584 completed or under construction and 11,505 in the pipeline, with the total number of BTR units totalling 15,089, which has seen the state recently overtake Queensland.

Knight Frank Partner, Living Sectors, Valuation and Advisory, John Paul Stichbury, said Sydney was expected to move into the limelight in 2025, as investors who have built up a Melbourne-centric portfolio look to build a presence across the Eastern Seaboard.

“Sydney has been slower out of the starting blocks compared to its Victorian counterpart, but BTR development activity is now accelerating as investors look to gain a foothold in the city,” he said.

“Development challenges are most acute in Brisbane and we therefore expect new-build supply in this market to lag Melbourne and Sydney in the short term, despite also facing a chronic lack of rental accommodation.

“In time larger platforms will look to diversify their portfolios with tier two locations, however the ‘Big 3’ cities remain the core focus for investors in the current climate.”

Activity in Western Australia and South Australia has been negligible but new projects have now entered the planning phase.

An estimated 8,900 dedicated BTR apartments are under construction nationally and a further 20,000 units are approved for development over the next five years, according to Knight Frank.

The sector is seen as a key armament in the battle against the rental crisis and new legislation passed at the end of 2024 will fuel further BTR development. The new tax concessions were waved through the Federal Parliament in its final sitting week. 

The reform could unlock an additional 80,000 new apartments in the next decade. The withholding tax concessions will be tied to five-year minimum leases, the provision of 10 per cent affordable housing and the scrapping of no-cause evictions.

National property developer Goldfields is one developer to have just entered the BTR sector. Construction on its first project, The Raleigh, a $350 million apartment complex in Windsor, Melbourne, is underway and due for completion in Q2 2026.

Marco Gattino, Managing Director, Goldfields, said historically low vacancy rates and a forecast shortage of new homes underpinned the strategic decision to move into the BTR space.

“Australia is suffering from a multi-decade housing underbuild, with pressure growing every day for developers, builders, and landlords to do more to ease the strain.

“Our expansion into BTR will help improve Melbourne’s rental affordability by injecting much needed, high quality apartment stock into a tight market experiencing huge undersupply.”

Knight Frank’s Mr Stichbury said the underlying fundamentals and investment case for BTR have arguably never been stronger but pointed out that challenges remained.

“Investment volumes in 2024 have been impacted by the wider macroeconomic environment and uncertainty around government policy.

“This has constrained the availability of capital and slowed deal flow.

“The development market remains challenging, with persistent build cost inflation putting pressure on feasibilities.

“Growth of the BTR market in Australia is largely reliant on new-build development to deliver the product, and the pace of construction starts has slowed recently following several years of strong expansion.”

Any concerns about oversupply are overshadowed by the reality that BTR is still in its infancy in Australia.

A record number of 3,227 units have opened their doors in Melbourne in 12 months. While that is a relatively large number of units by historical BTR standards, it represents a modest addition when taking into account the size of the wider private rental market in the city.

Existing BTR supply in Victoria, the most advanced BTR state, accounts for just 0.8 per cent of the rental market (by number of households). When combined with BTR units that are under construction, this remains sub 1 per cent.

Community Housing Industry Association (CHIA) CEO, Wendy Hayhurst, welcomed the fact the new legislation means tenancies will now be offered for a minimum of five years instead of three, while incentive payments and tax treatment will catalyse greater investment in the supply of high quality rental housing.

“When done correctly, BTR provides tenants the sort of stability they badly need but can’t get because private ownership is out of their reach.”