An oversupply of off-the-plan developments in capital cities should be a concern for property managers and investors, as it could cause vacancy rates to rise in older apartment buildings, CoreLogic has warned.
CoreLogic’s head of research Tim Lawless recently said that while capital cities are the most at risk, Sydney seems to be the least affected by the oversupply.
“Sydney looks pretty safe. All the metrics we follow show that Sydney’s supply levels are very high but they’re not oversupplied,” he told The Adviser.
The same cannot be said for other capitals, with Brisbane, Melbourne and Perth adversely affected by the boom in off-the-plan developments.
“Unit markets well and truly have reached new historic highs for the amount of supply that’s been approved and is now under construction,” Mr Lawless said.
This growing number of new apartments could “see renters fleeing to quality” which would cause vacancy rates to rise in older apartments.
Separating your investment from the crowd is the key to avoiding vacancy in this market, Mr Lawless said.
“The projects which are more protected tend to be those that are somewhat differentiated, whether through location, if they’re closer to rental hubs, to amenities or public transport and so forth.”
A CoreLogic report released earlier this year showed that rental rates were decreasing due to an oversupply of properties.
CoreLogic research analyst Cameron Kusher warned that this was expected to continue throughout the year and could affect more than just off-the-plan developments.
“Potentially, the changing rental market conditions will have a flow-on effect for older stock, particularly units given we’re seeing so much new unit supply being added to the rental market, much of which is located in inner city locations.”