Time is Right for Build-to-Rent Boom

Billed as one of the most pandemic-proof asset classes, the Australian build-to-rent sector is gathering pace with more new players deciding now is the time to dive in.

“This is no pipe dream anymore, it’s real, it’s coming out of the ground,” a build-to-rent specialist agent says.

But why is the climate right for this style of development? Why are so many new players and institutional investors joining the heavy hitters?

Hines director of living Sam Bisla says it all comes down to being on the crest of the wave. And one thing is certain—good research and granular market intelligence is key before taking the plunge into the emerging asset class.

Hines has vast international experience and in-house research it engaged to launch its Australian build-to-rent platform in Melbourne, filing two permit-approved acquisitions in the past six months.

“[Hines] feels that we have the ability to take a leading position in the Australian build-to-rent market,” Bisla says.

“We and our investors see value in this sector. And believe it will move to a major asset class, just like it is elsewhere in the world.

“Everyone likes the benefit of the early entrant because you can get more favourable terms. We see value in this sector. We see value in the Australian story and we want to build scale as early as possible.”

Hines has 51,000 build-to-rent properties across the US and UK and is the second largest developer in the sector globally, following Greystar.

Last year the privately owned group acquired 10 Ballarat Street at Brunswick, and last month added 36-58 Macaulay Road to its build-to-rent portfolio.

Both sites are already permit-approved, which Bisla says is part of their shovel-ready strategy for managing risk profiles.

He says the Hines point of difference is the customer-centric design of its offerings, informed by forensic research on demographics to create resident profiles.

It also focuses on smaller-sized developments of a maximum of 200 apartments to ensure a sense of community.

But Bisla says Australia is at the tip of the iceberg when it comes to the meteoric growth tipped for this nascent asset class.

“I like to think that globally, Australians are more alike than different to our US and UK cousins. We have the same want to be near open spaces, employment, and amenity. And the same thematics are present also,” Bisla says.

“Affordability is an issue everywhere. It’s all coalescing to allow for this asset class to establish itself in the Australian market.

“We believe the customer [renter] market will be accepting of the product. But where Hines differs from some of our competitors is that we don’t believe its solely for the amenity.

“It’s great to have the infinity pool and gym, but what they’re really paying for is the removal of the friction points of renting, the creation of community and to experience a sense of home ownership with added flexibility.”

While Melbourne may be the breeding ground for build-to-rent developers, Bisla says Hines is looking to Brisbane and Canberra, as well as Wellington and Auckland across the ditch.

It’s a frog hop that the likes of Mirvac and Frasers have already made with projects breaking ground in Brisbane last year.

But while more players enter the market, Bisla says few are out of the ground and flourishing.

“It’s still a nascent industry, there are only 11 players who have one or more [build-to-rent] assets, and of that there’s only three internationals, including us. It’s still early days” he says.

Savills research indicates almost 70 per cent of local government areas across Australia’s five major capital cities need more rental supply, which could fast-track the build-to-rent sector’s growth.

Savills director of operational capital markets Paul Savitz says while the build-to-rent market in Australia is fragmented, investors are looking to scale up quickly.

“We look to more established build-to-rent markets such as the UK and US for an indication on how the Australian market will progress, and we expect consolidation in the future, as has happened globally,” Savitz says.

“As build-to-rent continues to mature as an asset class, we expect greater liquidity and economies of scale will put downward pressure on the sector’s risk premium.”

Rental growth in Australian capitals: fourth quarter 2021

Another green shoot looking to capitalise on the greener pastures of build-to-rent is newly-minted Alt Living, with former Hmlet Australia managing director Chrystan Paul leading the charge.

“We’ve spent a lot of time looking at where is the best city to get started,” Paul says.

And like many other build-to-rent players Paul landed on Melbourne, the heartland of the burgeoning industry, acquiring two sites in the capital.

“We had to make the call, we had to say this is what we’re doing and this is who we are, Covid-19 was subsiding and the time was right,” Paul explains.

“Build-to-rent and multi-family assets have emerged as one of the most resilient asset classes out of the pandemic landscape.

“What surprised most people was the level of rental growth in key metro markets in the US and UK post pandemic, which has far exceeded anyone’s expectations.”

Rental recovery was expected to take one to two years following the pandemic, but certain London suburbs, such as Canary Wharf, have recorded 12 per cent rental growth as migration is reinstated and people return to the city, according to Paul.

Paul says he expected rental growth in Australia to follow suit over the next 12 months and those with assets already in the market were in the box seat.

“In Australia our borders are reopening and the market is normalising. For Alt Living, we’re focused on getting our assets completed to try and capitalise on future rental growth,” he says.

“Build-to-rent will benefit from Australia’s recovery looking forward. Over the next 12 months the platforms that already have build-to-rent assets in market can really capitalise on rental demand.”

Alt Living has two build-to-rent developments in the works: a mixed-use project in Melbourne’s CBD comprising 267 apartments and the other will be in South Melbourne’s Fishermans Bend urban renewal precinct at 11-41 Buckhurst Street.

Paul says there is a collaborative nature within the industry with different platforms targeting particular niche markets and helping to educate both investors and potential residents on the emerging asset class.

“We are really targeting young working professionals entering the rental market and looking for convenient locations … we’re not wanting to be luxury.

“Each group has a different read on the market … but we all need each other to do well … the whole sector really rises together.”

And in support of its gravity in Australia’s real estate landscape Colliers has launched a build-to-rent team headed by Robert Papaleo and Jozef Dickinson in Melbourne.

Papaleo said more build-to-rent developers were hunting down opportunities in the market now.

“Where once we had maybe five buyers showing up for these sites, we would probably have about 15 now,” Papaleo says.

“We’re taking early steps now in anticipation of how big the opportunity will become.”

Dickinson said while Melbourne had been the birthplace of the sector in Australia many players were looking further afield for opportunities in Brisbane and Canberra.

“We’re also starting to see more fund through process deals and completed stock deals as the market matures,” Dickinson said.

“Since 2018, Colliers has managed 85 per cent of agency-led transactions of build-to-rent sites and forward sales of assets-upon-completion across Melbourne. We have also introduced several overseas entrants to their first deals in the Australian market.”

Papaleo says build-to-rent developers are looking for the same thing build-to-sell developers are looking for, scale and upside in the right location. But the approach is with a much longer-term view with a focus on ongoing viability of financial model and not exit strategy.

“The fundamentals are there, they’re looking for city fringe, somewhere between three to five kilometres from the CBD, and a site that provides scale,” Dickinson says.

“We’re starting to see more developments greater than 250 apartments, and we’re now seeing other groups come in at the 100 to 150-apartment end.”

The team has forecast the build-to-rent market to pick up in other cities across Australia over the next 12 months.

“They need the right sites to come up to take that model into new markets … we expect to see deals in [other cities outside of Melbourne] in the next year … they’re already looking,” Dickinson says.

“They’ve seen their peers come in and establish the market, it’s no longer a pipe dream, it’s real, it’s coming out of the ground.”

« Back To News