Inner-Brisbane apartment market risks oversupply: Report

A combination of too many projects and historically low demand could result in oversupply of new apartments in inner-city Brisbane suburbs like Fortitude Valley and Bowen Hills, valuation firm LandMark White has warned. 

The warning comes as the latest figures from the Real Estate Institute of Queensland for the December 2011 show that rental vacancies in inner Brisbane increased from 1.4% in the September 2011 quarter to 1.9% in the December 2011 quarter, while the overall city vacancy rate remained unchanged at 2.3%.

LandMark White anticipates that low level migration into Queensland will continue to undermine the market. 

“This will see the inner-Brisbane apartment market continue to battle through one of the toughest phases in the property cycle in the last decade,” the firm says. 

As a consequence, it says “developers will need to ensure their ability to target niche markets through well-designed, appropriately priced product and high-quality amenity in an attempt to avoid oversupply or project deferral”. 

There was a 30% increase in sales of inner-Brisbane city units off the plan in the traditionally active September quarter, with 312 transactions taking place compared with 240 in the previous quarter. However, this figure was down 27% compared with the September 2010 quarter. 

“Incentives and rebates are also prevalent in this market as developers struggle to achieve sales,” says LandMark White. 

On the positive side, the RBA is tipped to further cut rates early in 2012, which should improve affordability and raise investment yields. 

“Rentals in the inner-Brisbane apartment market have experienced strong growth over the year to September 2011, with a 6.8% increase in the median weekly rent to $470. Coupled with historically very low vacancy rates should see the inner-Brisbane residential market become more attractive to the investor market,” the report says. 

And while the report notes there have been some encouraging signs for the inner-city residential market, particularly after the last interest rate drop, it says the market needs confidence and that may be dependent upon the outcome in Europe. 

“The first three months of 2012 may set the tone for the remainder of 2012.” 

LandMark White has calculated that there are around 12,100 apartments currently in the development pipeline and around 100 projects in total. 

Of these projects, nearly half (47%) have received development approval and nearly a third (33%) are under construction. 

Nearly two-thirds of the projects under construction are located in the expanding inner-northern Brisbane market, which includes the suburbs of Fortitude Valley and Bowen Hills.

 Source: LandmarkWhite

Some of the highest profile developments are in these two suburbs, including Alex Perry’s designer apartment building on Ann Street (131 apartments) being developed by the Chrome Property Group  and Metro Property Development’s 14-storey Brooklyn complex on Brookes Street (191 apartments) a joint project with Indian-based Pearls Australiasia. 

One of the biggest urban regeneration projects is Lend Lease’s redevelopment of the RNA showgrounds into a predominantly residential mixed-use community. The project will be completed during 13 stages and is expected to accommodate a resident population of 10,000 people and a workforce of 8,000 people.

Upon completion, it will have 2,500 apartments, a hotel, convention centre and other commercial and retail facilities including restaurants and fresh food market. Stage 1, known as “The Green”, has already commenced earthworks and will comprise 340 one- and two-bedroom apartments priced from mid $300,000.

Photo courtesy of Flickr.