Brisbane's inner city apartment market: Q&A with Urbis' Jon Rivera

Today Urbis released its quarterly Brisbane Apartment Insights report, detailing the changing conditions and trends affecting Brisbane's inner city apartment market.

Property Observer spoke to Urbis' national director of residential Jon Rivera about what's driving growth in Brisbane's apartment sector and what this means for the property market. 

What are some of the growing trends in Brisbane's inner city off the plan apartment market?

We've never really seen this much activity in Brisbane.

It's a pretty exciting time for Brisbane, with this level of development and also infrastructure growth, through masterplans and government infrastructure.

Brisbane is growing very quickly, from a demographic point of view. Nationally, there are some major changes happening right now in the residential market, and we're seeing new fundamentals emerging.

What demographic trends are driving the growth of the inner-city apartment market?

The residential market is built off two major demographic groups: the 25-30 year old bracket, which is very large and growing significantly, and baby boomers.

They're very complex groups, so I normally hate to say "Gen Ys and baby boomers". But they are major demographic groups in the residential market.

We're seeing major changes in the type of properties that they're looking for. The trade off they have to make to cope with the cost of living is definitely having some implications for demand.

We're also seeing changes in infrastructure and where that's being invested. We're seeing much less urban sprawl and much more upwards development. It's cheaper to upgrade and put infrastructure in central areas where there's already a major population, rather than emerging regional areas.

Where is apartment growth focused?

The major development is happening is along corridors where there is existing infrastructure, or proposed future infrastructure. Running from Wooloongabba, West End, South Brisbane, coming through to the CBD and going into Fortitude Valley, Bowen Hills and going all the way up to Hamilton - that's where we're seeing a lot of supply and demand.

These emerging developments are all still fringe based. The CBD is probably undersupplied - it's got a few developments on their way, but it predominately the growth is in the fringe areas.

For apartment developers, there were better opportunities in the fringe. In South Brisbane, there was very little supply, and it made perfect sense to develop because the infrastructure was already there. The same was the case in Fortitude Valley.

Is there a threat of oversupply in the Brisbane apartment market?

There are a couple of things we need to get clear on in terms of apartment development from a supply point of view. We often talk about 23,000 apartments in the inner Brisbane market, which are either in the application, presale, or approvals stages, but you can't look at thin air.

We care more about settlement, which has been pretty fragmented. There is a lot of stock coming through the off the plan through to the end fo 2015. It's a very hot market, but it really is about that settlement.

Rents are definitely aligning. They're starting to move away from the inflation period we had that was created on low supply. That, to me, is saying that developments are doing what they should.

2015 is definitely going to be very competitive for the off the plan apartment market. We're probably going to see a lot of developers not get off the ground, which is going to affect supply.We look at a lot of these developers playing in Brisbane and to be honest, there are some that have not proven themselves yet.

There are still a lot of challenges when it comes to taking that glut of supply and making it a tangible product.

At the moment, there are going to be areas that are going to have some fluctuations, which always happens. We're going to need continued population growth, through migration and international students, which are very important to Brisbane's inner city rental market.

Brisbane is also very closely related to what's happening in Sydney, and prices are obviously high there, which may drive demand for Brisbane.

The one thing that we definitely know is that we're going to see more renters come through.

The cost of living is unfortunately not getting any easier. In Australia, the employment opportunities are very centralised. The infrastructure is very challenging as we go further out, and in the capital markets, the 15 kilometre to 20 kilometre ring from the CBD is very difficult market to get into for young buyers.

The ability to own their own home is a big trade off for younger people - if they buy further out, that's going to cost them more in terms of fuel. Thats why we're looking at the apartment market. Sure, supply is coming through, but the challenges facing buyers and the demand growth is here to say.

It will go through the fluctuations, and developers are great at getting a good thing while they can, and then we'll see a correction.

How will the influx of new apartments affect Brisbane's rental market?

We are hearing that rents are softening.

The owner occupier market is really taking an effect on the existing apartment market and the more mature stock on the market, taking that away from renters. So the new apartment market is obviously catering to renters.

Rents have been quite inflated, so we have a buffer. Now, we can make things align, and it's getting a bit better from an affordability point of view. The time to fill an apartment is growing, but still pretty good. Instead of one week, it'll take a month or two months to fill an apartment.

To me, this is a normal thing, and means developers are doing their jobs.

Historically, December always seems to have a lot of vacancies, and so does the March quarter because it includes January. In June it always comes back again, to around the 3% mark.

There are going to be pockets where there are going to be some realignment in rentals, which I think is positive. It's a good thing for the renter, who can see what amenity they get for their dollar. There's going to be some good choice there, and affordability will improve. That's a good thing.