A number of build-to-rent investment opportunities remain in Australian cities despite a range of challenges, according to a new report.

Colliers International’s The Introduction of Build to Rent in Australia explores the alternative development model where a developer builds and holds the stock specifically for long term income-generating assets, as opposed to the traditional build-to-sell model. 

Colliers International International Residential Research Manager, John Nicolopoulos, said while there were variables that impacted the implementation of the model in Australia, the sector was slowly gaining momentum in the country.

At a glance:

• Colliers International has released a new report exploring Australia's burgeoning build-to-rent sector.
• The Introduction of Build to Rent in Australia says there are still build-to-rent opportunities in Australia, despite a number of challenges.
• Perception and feasibility are identified as the main challenges to the sector.

“Build-to-rent is an established asset class in both the UK and USA, and as the ‘Australian dream’ of home ownership has become progressively difficult, the model is beginning to garner interest throughout Australia,” he said.

"Despite the challenges ahead, opportunities do exist.”

Colliers International Managing Director Peter Chittenden said there were various markets around Australia in which a build-to-rent investment case could be created. 

“It is imperative that developers conduct thorough research and demographic analysis to ensure they identify who their market is and what they value to ensure yields and returns are maximised,” he said. 

“Moving forward, the success of the build-to-rent model will revolve around its ability to differentiate from the private rental sector through the level of service (management), security, design, amenity and tenure.

“Opportunities exist outside CBDs, in particular, where land is more affordable and rental demand is strong.” 

Currently, build-to-rent is not treated as a standalone asset class, despite residential housing being a $6.6trillion asset in Australia (as of September 2019). 

Mr Chittenden said a collaborative approach was needed for build-to-rent to flourish.

“If government and industry can work together to create the framework for improved policy, address taxation concerns and streamline development approval, then the build-to-rent model has the scope to become a meaningful real estate investment for local and international institutions that also delivers upon a range of community and policy objectives including a more diverse stock of quality housing choices," he said.

Australia’s population is expanding at the fastest pace in the developed world as skilled migrants flock to the growing economy in search of employment opportunities, education and a better quality of life. 

In 2018, Australia’s population grew by approximately 405,000 people. 

Mr Nicolopoulos said as the population grew, so did the need to provide more housing increases with demographic and social shifts also requiring a more diverse range of stock

“The overall outlook for new releases and completions remains lethargic, resulting in good news for landlords; increased levels of demand and amplified competition for accommodation, forcing upwards pressure on rents," he said.

“Millennials, who will represent the largest percentage of global workforce within the next decade, are poised to drive demand for build-to-rent.”

Mr Chittenden said there were several key challenges to be overcome in growing the build-to-rent sector in Australia.
 
“The first of these factors is mindset – there is a strong culture and belief in Australia that home ownership correlates to one’s level of success,” he said.

“The ‘Australian Dream’ of home ownership has become increasingly difficult as property values have increased at rapid rates. 

“The perception of renting being a short-term stepping stone to home ownership still needs to be shifted. 
 
“The next challenge is feasibility - Land in desirable locations across Australian cities, especially Sydney and Melbourne, is both difficult to find and extremely expensive."

Click here to download the full report.

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