Australia’s Build-to-Rent (BTR) market is set for growth as short-term challenges impacting new construction start to fade and governments enact key tax concessions, JLL’s Q4 2024 Apartment Market Overview reveals.

JLL’s overview finds there were 9,180 operational BTR apartments as of Q4, 2024, with 4,147 completed last year alone. A further 8,199 are under construction, with 4,635 due for completion in 2025. There are 17,043 in planning approvals, an increase of 32 per cent over the course of 2024.

JLL Head of Residential Research – Australia, Leigh Warner said: “Australia’s rental market has been strong the past few years, with very low vacancy and strong rental growth, which has recently inevitably stalled after three years of double-digit growth. Despite this, the medium-term rental market outlook remains robust due to undersupply.

“This widely-recognised supply shortage is leading to governments of all levels to support the growth of BTR. The growth of developments shows there is still a lot of optimism about BTR prospects in Australia longer term, despite more short-term challenges to getting projects started in 2024. Some of those challenges should fade in 2025 and we expect more projects to start construction,” said Mr Warner.

Critically, in late-2024 the Senate finally passed important policy changes that should stimulate BTR market activity in 2025. The changes were announced in the May 2023 Federal Budget and reduce the withholding tax rates for foreign investors in Managed Investment Trusts (MIT’s) from 30 per cent to 15 per cent, and introduce accelerated depreciation tax allowances for eligible BTR projects.

JLL is now tracking 42,812 BTR apartments at various stages of development, a year-on-year rise to Q4, 2024 of 10.5 per cent. More than half of Australia’s BTR project pipeline is in Victoria (52 per cent), followed by Queensland (24 per cent) and NSW (17 per cent).

Despite the increase, the total BTR pipeline is still small (around 10 per cent) relative to Australia’s historical apartment construction levels and is not large enough to offset the large decline in Build-to-Sell (BTS) construction nationally.

Recent BTR completions include Greystar’s 700-unit Gladstone project in South Melbourne, Novus opening the 170-unit Novus on Sturt in Southbank and Local’s 467-unit development in Kensington. There was only one project to open outside of Melbourne - Sydney’s 234-unit Indi City, located above the new Pitt Street Metro station.

Meanwhile, according to JLL’s Q4 2024 Apartment Market Overview, lower interest rates and affordability should support apartment demand and prices over 2025.

The report paints a picture of divergent apartment markets across Australia that are nevertheless underpinned by growing levels of under supply.

This discrepancy across markets is borne out in existing unit price growth. Median unit price growth over 2024 ranged from a 3.0% decline in prices in Canberra to a 22.7% rise in Perth. Prices also fell over the year in Melbourne and grew moderately in Sydney. Price growth in Brisbane and Adelaide was strong and not far off the levels reached in Perth

But while conditions are predicted to stay subdued in the first half of 2025, interest rate cuts and the ongoing worsening undersupply of housing nationally could see conditions turn relatively quickly in the second half of the year.

Bill Fatouros, Senior Director Valuation and Risk Advisory at JLL, commented on this outlook: "A federal election could add to the indecision and stalling of activity in the housing market in early-2025. But ultimately Sydney is an interest-rate sensitive market and likely further cuts could get the market going again in the second half."

JLL’s Head of Residential Research – Australia, Leigh Warner said “Despite rising demand and a broad recognition among developers that we need more supply, development feasibilities for mass-market apartment stock remain challenging and few large-scale projects are commencing construction. As early project activity increases, it will take at least several years to see any substantive rise in completions. Supply is likely to continue to fall short of underlying demand.”

While slowing population growth is reducing growth in underlying housing demand in Australia, supply issues and affordability are pushing that demand away from detached houses and towards apartments. Demand remains particularly focused on smaller high-end projects, largely driven by downsizers that have benefited from equity growth in existing properties.

Rental vacancy rates across Australia remain tight, but rental growth slowed over the second half of 2024, stalling in some markets. Melbourne, Perth and Canberra saw no percentage change in asking rents for two-bedroom apartments over Q4. Sydney rents dropped 6.7 per cent and Adelaide rents dropped 3.8 per cent over the period, while Brisbane saw the only increase, of 5.2 per cent in Q4.

Mr Warner said “With little supply relief, rental markets are expected to remain tight across all of Australia’s major cities over at least the next few years. But despite ongoing low vacancy rates, affordability is increasingly becoming a constraint and slowing rental growth to be more in-line with income-growth levels.”

There were 11,285 apartments completed in 2024 across the major capitals. Melbourne led the way with 4,246 completed, followed by Canberra (2,381) and Sydney (2,210). Approximately 81 per cent of apartments currently under construction are concentrated in Sydney (35 per cent), Melbourne (24 per cent) and Brisbane (22 per cent), although Melbourne’s share of construction is lower than it has been over the past decade.