Brisbane apartments within the inner ring of Brisbane are still very affordable, with a median of just $535,000 as at February 2023. This price point is appealing to interstate and overseas investors as well as to locals trying to avoid the rental squeeze. But is this about to change?
Brisbane’s apartment supply has swung dramatically from an oversupply that peaked in 2017 to an undersupply now. NPA recently commissioned the Property and Economic Research house, Urbis, to perform an assessment of the Brisbane Apartment supply pipeline. As you can see from the table below, there were less than 1,000 new apartments brought to market in 2022 – the lowest seen since the GFC aftermath, 13 years ago.
There have been many factors that have led to the undersupply that is now bordering on social crisis. Some of which include, significant increases in construction and material costs, an increase in land prices, a decrease in our skilled labour force, and a tightening of funding requirements for Developers. The table above shows continued low supply for the next few years. This will be exacerbated by delays in construction, builders going into liquidation, and projects becoming increasingly unfeasible in their current form. This means that much of the blue, purple and pink bars above may not materialise into green bars and given most projects take 4 years to get to market, supply is likely to remain well below demand levels until 2027 at the earliest.
Of course, supply challenges are only half the story. Economics 101 tells us that in addition to supply restraints, increases in demand will also result in price rises. So, what’s going on with demand in inner-city Brisbane? A stupendous amount of public and private infrastructure spending, the most in living memory, that’s what! Some major projects include Queens Wharf, Brisbane Live, Cross River Rail, Brisbane Metro Transport project, Green Bridges Project, Waterfront Precinct, North Key, Victoria Park and other significant Olympic Games projects and stadiums. We have also just doubled our airport runway. This all means jobs, amenity and migration. These are all inner-city projects and if you live in Brisbane, you know that the majority of the existing employment, entertainment, health, and education infrastructure exists within the inner circle. Unlike Sydney and Melbourne, if you’re 10 minutes out of Brisbane CBD, you’re in cul-de-sacs. Enough said about demand?
So why then haven’t prices for inner city apartments increased significantly yet? Well, the short answer is… they have! But it’s not easy to read this in the data. To understand where I’m coming from, you need to understand how Median growth rates are measured. Firstly, the term median refers to the middle and not the average. So, if nine units are sold in a year, they would be ranked from lowest sale price to highest (or vice versa) and the median value for that year would be the exact price that number five sold for.
Secondly, median growth rate data is taken from sales prices that have been achieved in a particular year. If there are very few new projects, or luxury projects, completed and settled in a certain year, then the bulk of the data, would be made up of the resales of older properties. In Brisbane, this most likely represents the investment grade product that was originally mass marketed to international investors (particularly in South Brisbane and Fortitude Valley) ten or so years ago, or the suburban six pack units that were built in the ‘70s. The resale of these types of properties would obviously lead the Median values in the years where there were only modest amounts of new, more luxurious and expensive apartments sold.
So, in summary I can say, that the boots-on-the-ground anecdotal evidence is showing an overwhelming demand and significant price increases over the last couple of years for newer, high-quality, apartments that have Owner Occupier appeal. A number of my clients that purchased high-quality apartments in the $500k to $700k range a couple of years ago, in suburbs such as West End, Kangaroo Point and Newstead are now valued in the range of $600k to $900k, representing an average uplift over the last 2.5 years of $150,000 or 25%.
Of course, increased interest rates have slowed things a little, however, I believe this is no more than a pause. It is not Investors who are leading the charge! This is quite clear from the lack of rentals available. It is the Owner Occupiers migrating from interstate and overseas, and the Downsizers who can’t afford the high interest rates, that are driving high demand, and they can’t pause for much longer.
So, are prices of Brisbane inner-city apartments going to increase significantly in coming years? As mentioned, some already are despite the challenges and economic uncertainty. But yes, I believe high-quality, new inner-city Brisbane apartments are about to have their time in the Sun. I cannot remember a time in my lifetime (and I’m old) where the price-earnings ratios have been so narrow, the vacancy rates so low, and the supply-demand gap so wide. For a relatively low entry point, Brisbane inner-city apartments are looking incredibly attractive to the cashed-up, or brave, Investor. However, when we look back at median growth rates in five years’ time, we still may not see with clarity the opportunity that the 2022/23 investors were blessed with.