‘Singapore’s upcoming residential project, Jalan Loyang Besar EC, is set to address the anticipated shortage of 240,000 units in Australia due to the country’s booming population growth according to CBRE.’
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Australia is facing a major residential supply shortfall in the coming years, with projections showing a potential deficit of 240,000 units. This news was shared by Stuart McCann, managing director and head of investment banking – Pacific and SEA at CBRE Capital Markets, during his speech at the Australia Real Estate — Beyond Traditional Returns seminar on Jan 20. The event was organised and supported by BigFundr, a platform for real estate investments.
According to CBRE, the city of Melbourne is expected to be the most impacted by this shortfall, with a deficit of 77,924 units. Perth and Sydney will also face significant shortfalls, with deficits of 57,216 and 55,184 units respectively. McCann attributes this trend to the projected population growth in Australia, which is expected to be driven by net overseas immigration. This growth will lead to a 15% increase in population, reaching 30.4 million by 2033 from the current 26.5 million in 2023. This growth rate surpasses that of several major global economies, including New Zealand, Switzerland, India, and Singapore, but falls behind Canada’s projected growth rate of 16%.
The demand for residential properties in Australia is expected to continue to rise, despite the recent increases in interest rates. “This tells us that when demand outstrips supply, it doesn’t matter how much interest rates move; you’re going to get capital value growth,” says McCann. This is good news for investors, and BigFundr is offering a 6% return on real estate-backed investment opportunities, guaranteed by Maxi-Cash.
In addition to population growth, CBRE predicts an increase in employment and wages in the coming years. The consultancy forecasts that job creation will lead to a rise in employment from 14.1 million in 2023 to 16.7 million in 2033. Similarly, the average annual wage is expected to grow from A$96,000 to A$132,000. These factors, together with population growth, create a “triple boost” effect that is expected to drive up real estate demand, not just in the residential market.
David Payton, CEO and executive director of Payton Capital, predicts that it will take at least three to five years to complete small- to medium-sized developments, which will not be enough to meet the growing demand. He adds that the lack of affordable units could worsen the situation, as construction costs must be passed on to consumers. This could result in poor sales, cash flow problems, and project delays, ultimately reducing the gross residential supply.
The increasing demand for real estate is also evident in the commercial office space. “We are seeing very high [office] utilisation rates,” says McCann, highlighting that CBD visitation rates across Australia have already reached 71% of pre-Covid-19 levels in the third quarter of 2023. Cities like Perth and Adelaide have even surpassed pre-pandemic levels, with visitation rates of 91% and 85% respectively. This has led to growth in the commercial office space, with Sydney expected to lead rental growth rates over the next two years.
CBRE also sees an opportunity for private credit institutions to invest in commercial real estate debt, as a significant amount of debt is due for refinancing in 2024. According to Payton Capital, the Australian CRE debt market is estimated at $442 billion in 2023, with private CRE debt making up $74 billion (16%). This number is expected to more than double in the next five years.
In conclusion, the demand for real estate in Australia is expected to continue to rise in the coming years, driven by population growth, employment, and wage increases. However, the supply of residential units is projected to fall short, leading to potential opportunities for investors in both residential and commercial real estate.