NSW has ramped up its build-to-rent pipeline and is set to attract investors, says report

After years of trailing Victoria and Queensland, the NSW build-to-rent investment market is taking off, a report by Knight Frank’s Australia says.

Knight Frank’s Australia latest quarterly Build to Rent Update report says about 8900 dedicated BTR apartments are under construction in Australia.

While Victoria continues to be the place for build-to rent investors, NSW has ramped up its pipeline overtaking Queensland and will attract more investment this year, according to a new report.

Knight Frank’s Australia latest quarterly Build to Rent Update report found about 8900 dedicated BTR apartments were under construction in Australia and a further 20,000 units have been approved for development over the next five years.

Since 2018, 19,308 BTR units have been delivered or are under construction nationally, while another 40,191 units are planned but not necessarily yet approved. The total comes to just under 60,000.

The BTR pipeline is most advanced in Victoria, followed by NSW and Queensland.

Knight Frank partner living sectors, valuation and advisory John Paul Stichbury said Sydney

was expected to move into the limelight this year, as investors who had built up a Melbourne-centric portfolio sought to have a presence across the eastern seaboard.

“Sydney has been slower out of the starting blocks compared to its Victorian counterpart, but BTR development activity is now accelerating as investors look to gain a foothold in the city,” Mr Stichbury said.

“Development challenges are most acute in Brisbane and we therefore expect new-build supply in this market to lag Melbourne and Sydney in the short term, despite also facing a chronic lack of rental accommodation.

“In time larger platforms will look to diversify their portfolios with tier-two locations, however the big three cities remain the core focus for investors in the current climate.”

Since 2018, 19,308 BTR units have been delivered or are under construction nationally.

The report says Victoria has had 11,098 BTR units either completed or under construction, and another 14,440 are in the pipeline totalling 25,538.

In Queensland, 4157 units have been completed or are under construction, with another 10,233 in the pipeline to total 14,390.

NSW has 3584 completed or under construction and 11,505 in the pipeline, with the number of BTR units totalling 15,089. As a result the state has overtaken Queensland.

The ACT has just 1723 either completed, under construction or planned, while Western Australia has 1568 and South Australia has 1191.

Knight Frank partner and head of alternatives Australia Tim Holtsbaum said the volume of

committed and planned BTR development in Australia was increasing fast, and the growing availability of rental and operational data would help to attract new capital into the sector.

“The investment case for BTR has arguably never been stronger and this year activity will accelerate as we enter a rate-cutting cycle,” he said.

“In recent investor surveys, ‘beds’ are often vying with ‘sheds’ for the top spot in preferred sector rankings.

“Investors are gravitating toward living sectors partly because of its defensive characteristics – specifically the ability to adjust rental income streams more quickly than other sectors in response to high inflation.”

Some of the bigger deals in the quarter were OTPP and Hines acquiring two BTR assets in Brisbane from private construction and property group ADCO – an 89-unit operational asset in Fortitude Valley and a 265-unit development in South Brisbane due for completion in early 2025.

Lendlease received backing from Japanese investor Nippon Steel Kowa Real Estate for a 499-unit BTR tower in Melbourne’s Docklands. While in Sydney, new ventures have secured capital this year, including Apt. Residential and Scape – in both cases backed by Dutch pension funds.

Mr Holtsbaum said short-term challenges in the BTR sector persisted, and investment volumes in 2024 were affected by the wider macroeconomic environment and uncertainty around government policy, as well as a challenging development market. Building cost inflation put pressure on feasibility.

“Despite these headwinds, there have been some good wins for the sector recently,” Mr Holtsbaum said.

“After a long delay, critical legislative reform of BTR tax policy has been passed by parliament. This signals to foreign investors that the Australian government supports and recognises BTR as an important component of future housing supply.

“A more favourable policy/investment setting will help to accelerate inward investment from established global investors. This is important as domestic funds continue to largely sit on the fence when it comes to BTR.

“This year we expect strong demand for operational BTR schemes driven by a scarcity factor and appetite for income-producing assets. On the development side, stabilising constructions costs will help feasibilities and perception around development risk.”

Originally published as NSW has ramped up its build-to-rent pipeline and is set to attract investors, says report