Apartment floor space shrinks to capture investors

Apartment floor space shrinks to capture investors

Posted on Tuesday, October 16 2012 at 3:52 PM

High-rise apartments are likely to shrink as developers squeeze out as much profit as they can in a soft market and chase investor demand, according to Colliers International.

Strongest buyer demand in new Brisbane apartments currently exists in the smaller stock, a trend that’s likely to map the future for developers and their project choices, says Colliers International Brisbane residential director Andrew Roubicek.

Investors are heading the new apartment buyer pack, representing around 85 per cent of all buyers in this sector, he says.

“Investors are very price sensitive in terms of what they’re willing to commit to, and with no desire to live in the property they’re buying, they’re purely looking at the return, and the best returns can currently be found in one-bedroom apartments.

“The yields for one-bedroom apartments are more attractive because they’re at a lower price point and that’s driving buyer interest for one-bedroom apartments over two-bedroom apartments.”

The one-bedroom apartment ranging in size between 45 square metres and 52 square metres, priced from $345,000 to $425,000, and achieving a six per cent rental yield, is where the demand is strongest, says Roubicek.

With demand strongest from investors, Roubicek says it would make sense to build stock to attract this market, while still considering the owner-occupier demand for the larger apartment when the owner-occupier returns to the market. “The ideal mix might be 70 per cent one-bedroom apartments and 30 per cent two-bedroom apartments.”

Roubicek says many of the owner-occupiers buying into the new apartment market are over-55s who want to move into the five-kilometre radius from the CBD and be close to amenity.

“While they’re typically looking to downsize from their house in the suburbs, a 50-square-metre apartment isn’t big enough for them. They will have come from around 220 square metres and in the majority of cases will want at least a two-bedroom apartment and will have a budget of around $550,000 or $600,000.”

While the future of high-rise apartments appears destined to feature smaller floor spaces, what this will mean is that the existing stock on the market with larger floor spaces will become more unique and experience greater demand, says Colliers International Gold Coast director of residential project marketing Mark Worth.

Existing apartment stock on the Gold Coast is a good example, he adds. 

“Most of the current stock available was built towards the peak of the market in 2007 and was aimed at lifestyle investors and owner-occupiers. Consequently, we saw an oversupply of supersized apartments designed to cater for that market, which crashed in late 2007 due to the global financial crisis.

“Many of these were 300 square metres to 400 square metres and commanded prices of up to $6 million at the peak of the market, and this product has now largely been cleared.”

New high-rise apartments will continue to shrink, not only in Brisbane but also on the Gold Coast, because developers won’t be able to profitably build larger units, says Worth. 

“They’re more likely to build the smaller one-bedroom plus study, and maybe two-bedroom apartments, while the larger two-bedroom-plus apartments will be harder to come by.

“This is what’s happening now in Brisbane, and the Gold Coast will follow once the current stock is exhausted and new developments take shape.

“We’re now seeing these larger unit developments selling out so there’s a constant reduction in stock levels and this will be the last of it for some time to come.”

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