Woods Bagot Global Studio News
Adaptive Reuse
2023-04-26
All news
26 Apr 23

Design key differentiator as BTR projects accelerate

Quality design will be crucial to achieving top rents for upscale build-to-rent residential developments as more properties are built and competition for tenants intensifies, according to architecture studio Woods Bagot.

There are an estimated all-time high 20,000 BTR units in Australia’s three-year pipeline and developers are piling into the sector, viewing it as a long-term alternative to the weaker build-to-sell market where pre-sales are tough and finance prohibitively expensive.

In the past four months alone, billions of dollars in funding have been committed to BTR projects and some of property’s biggest names are now involved, including Greystar, Mirvac, Lendlease, Grocon, Blackstone, Gurner, Qualitas, Ashe Morgan, Salta, Pellicano, Coronation Property, Australian Super, Holdmark, Sentinel Real Estate and Hines.

Woods Bagot is playing an important role in the emerging asset investment class, where all apartments typically have the same owner and are rented rather than sold, working with international real estate developer and manager Greystar on BTR planning strategies in all three eastern states.

The practice also designed two BTR towers at Coronation Property’s Mason & Main development in Merrylands, a five-building development now under construction (pictured above).

In nearby Parramatta, work on 180 George St, which Woods Bagot designed for Meriton after winning a City of Parramatta design excellence competition, is nearing completion.


What is build-to-rent?

  • BTR, known as multi-family housing in the US, is an emerging investor asset class in the Australian market where institutional investors fund the development of large residential apartment complexes, install onsite management, rent all the units out, and hold the property long-term to generate consistent annuity returns.

     

  • Rents are an average 15 per cent higher in BTR complexes than standard apartment rental stock in the same area in return for more flexible leasing terms, much larger range of shared amenities, onsite building management, often including a community manager, and ability to move easily within same complex as circumstances change.

     

  • In many respects the BTR model resembles hotel businesses with tenants instead of guests with lifestyle amenities including co-working spaces, residential lounges and dining rooms, wine cellars, wellness and yoga zones, swimming pools, dog parks and dog washes, outdoor spaces combining BBQs, lounge areas and gardens.

     

  • Community managers are a major product differentiator for BTR and other new asset types such as co-living developments over traditional apartment buildings. They have responsibility for activating shared spaces through curated events and experiences that bring residents together, a significant driver of interest from many prospective tenants.

 

Jason Fraser, Residential Sector Leader for Woods Bagot, says there’s been a “major change” in investor perceptions of BTR over the past year, in part due to uncertainty in other sectors such as office and retail.

High-profile coverage of Australia’s housing shortage, and the resulting residential rent rises across the country, also focused investor attention.

“We are speaking with a lot of investors wanting to diversify their portfolio and looking for assets with long-term annuity returns, which has led to them to BTR,” says Fraser.

In its latest BTR report, commercial real estate company JLL predicts rental increases will outpace inflation for the rest of this decade, however said some developers are facing challenges achieving projected rents for upper-end units.

“Some premium product at higher rent has been a little slower to gain momentum, but those projects closer to median local rents have enjoyed faster leasing,” says JLL. “Many have quickly reached a stabilised occupancy and are now lifting asking rents.”

Seven institutional grade projects completed in 2022, adding 1,955 apartments to sector inventory, now at 4,486 completed BTR units, still a miniscule fraction of Australia’s total rental inventory.

JLL says Australia has BTR development pipeline of 20,000 units through to 2025, and expects foreign capital inflows to increase, new players to emerge and site acquisition opportunities to return.

It expects “vendor expectations adjust to the reality that higher interest rates mean much lower demand and pricing for sites.

“This adjustment will likely see the number of opportunities increase for those BTR operators still in a position to buy sites and build their pipeline, perhaps in the second half of the year.”

Fraser says high quality design and better amenity will enable developers to stand out and potentially achieve higher BTR rents, which are typically 15 per cent more than traditional apartment rental stock.

“We are finding that clients understand the importance of differentiating their product in an increasingly competitive market,” says Fraser.

“Tenants want to live in high-quality buildings with strong design credentials, site context, quality materiality and a sense of place.

“BTR is not an amenity arms race – though facilities and events are important – it’s about creating a long-term home and community for residents through good management and design excellence.”

Chris Key, managing director of Greystar Australia, describes the present residential rental market – sharp rent rises, affordability issues and a shortage of stock – as a “complex equation”.

“There’s a chronic shortage of housing across the country – it’s everywhere, across the spectrum and all housing types,” says Key.

He says there’s a need for a holistic solution and that BTR is a crucial part of a broader strategic approach to Australia’s housing crisis.

“BTR is the fastest way to get product into the market because it’s backed by institutions who have the capital to secure and progress opportunities without the need for the long lead-time required for marketing and presales in the traditional for-sale market,” Key says.

Meriton’s 180 George St includes BTR.

“It’s a valid viable opportunity for our banks to back.”

Greystar raised $1.3 billion from offshore institutional investors to develop BTR product in Australia and has secured four sites.

Construction is under way on two large projects of more than 1300 units in Melbourne, the focus of Greystar’s activities to date.

Key says there are opportunities in Sydney – where high land prices have previously made investing difficult – and Brisbane.

“We’re looking right across Sydney … at a broad range of demographic profiles …. and are adapting our product to suit different markets.”

That includes smaller developments of 150-200 units and well-connected suburban hubs.

“We’re not fixated on the idea that we have to be in the inner-city,” he says, but good transport links are always important.

He adds that great design and ample amenities, which can include co-working spaces, residential lounges and dining rooms, wellness and yoga zones, dog parks and dog washes, as well as outdoor spaces that combine BBQs, lounge areas and gardens are key to leasing success and distinguishing BTR from the competition.

Creating community is another key differentiator. BTR properties typically have an onsite property management team with a community services manager responsible for activating amenity spaces through curated events and experiences that bring residents together.

“In a world where loneliness is an ever-increasing problem, particularly in the younger generation, there’s an important role for BTR to play in creating communities that bring people together in an engaging and inclusive environment,” Key says.

Latest from the Global Studio.