New apartment prices could jump 20 per cent by 2026 as supply forecasts tighten - is now the time to invest off the plan?
Is now the best time to purchase an off the plan apartment?
Recent data released from CBRE suggests new apartments are set to get more expensive, with CBRE forecasting prices could jump by as much as 20 per cent by the end of 2026.
CBRE is forecasting build prices are forecast to grow 23 per cent by 2026, as supply tightens to around 45 per cent below pre-pandemic completion rates over the next five years.
CBRE’s Pacific Head of Research Sameer Chopra said newly built apartments are commanding a premium price compared to older stock.
“These premiums are justified by changing consumer expectations around amenities, like building security, lift access, flooring to rooftop gardens and gyms, which typically come with newer builds,” Chopra said.
New one-bedroom apartments are delivering a 16 per cent premium compared to older apartments, new two-bedroom apartments are at a 30 per cent premium, and it’s 45 per cent increase for newly built three-bedroom apartments.
Urban.com.au CEO, Mike Bird, says we are seeing the gap between off the plan and established units continue to grow.
"Historically there hasn't been much backwards movement in the cost structure that drives new apartment pricing, so that suggests the only way the market can unlock the supply is by the price of established growing through increase lending capacity driven by the upcoming rate cut cycle."
The report forecasts rents will grow by 25 per cent ($170 per week) between 2024 and 2029 across 59 suburbs in Australian capital cities. By 2029 it’s predicted the rent for a two-bedroom apartment will exceed $600 per week across 90 per cent of precincts.
The Supply Factor
CBRE’s Apartment Vacancy and Rent Outlook 2H 2024 estimates over the next 10 years, demand for housing is expected to benefit from a combination of population growth (+3.9 million), employment growth (+2.6 million) and rising income (+$36,000).
In terms of supply, delivery of new apartments is expected to be around 50,000 per year from 2025 to 2029, but population growth is expected to require an apartment supply of approximately 75,000 per year to avoid further falls in vacancy.
In Sydney, apartment delivery is expected to average 12,100 per year from 2025 to 2029, well below the 30,000 average demand for housing stock per year. In the next three years, city-wide vacancy is expected to fall from 2.2 per cent to 1.5 per cent.
Apartment delivery in Melbourne is expected to average 8,700 per annum over 2025-2029, nearly 35 per cent below Sydney, however demand for housing stock is likely to average 37,000 per year over the next five years. The supply and demand inbalance should continue to drive down city-wide vacancy rates from 1.8 per cent to 1.4 per cent, CBRE suggests.
Brisbane's demand for housing stock is likely to average 18,000 per year, but apartment delivery is only expected to be 4,200 per year which should drive vacancy rates from 1.5 per cent to 0.9 per cent.
The Demand Factor
CBRE's Q3 2024 Residential Valuer Insights revealed that 43 per cent expect apartment value growth over the next 12 months, with the highest conviction in Perth and Brisbane metro.
CBRE's forecast suggest 60 per cent of new supply purchases will be from owner-occupiers. Over the past 25 years, the demographic has comprised 64 per cent of all purchases.
They say that of the investor market, they see a growing share moving across to institutional build-to-rent sector, which will comprises around 22 per cent of new apartment supply, or 11,000 per year, by 2029.
