Housing undersupply and slower CBD apartment development activity
Housing undersupply and slower CBD apartment development activity intensify demand pressure from the America’s Cup
| 20 January 2018
An existing undersupply of city centre apartments and constraints in the current market mean a surge in residential development, like what happened prior to the 2001 America’s Cup, is not as likely in the lead up to 2021, according to a new report.
The report by CBRE is the third in a series looking at the potential impact of Auckland’s hosting of the 36th America’s Cup regatta on the local property market and economy.
With syndicate sizes estimated between 560 and 930 members, and adding in family and support crew, up to 900 residential dwellings are expected to be needed for the next America’s Cup with a likely preference for the Wynyard and Viaduct areas.
For all syndicates, 2020 will be the main focus for spending time in the city with smaller syndicates likely to spend three months but larger syndicates basing themselves for much of that year and a part of 2019 also.
In response to the demand, the report notes that a muted supply of just 1,012 residential units between 2014 and 2016 in the city centre, to meet an additional 10,000 residents in the area over that period, has led to increased residential densities and virtually no rental vacancy in the market.
With undersupply expected to continue with projected population growth running ahead forecasted supply to 2020, Zoltan Moricz says the ability to accommodate syndicates is further compounded by complexities in the current development market.
“CBD apartment development has slowed down during the past year. Sales and project launches have both declined and developers are facing greater challenges from rising construction costs and lack of construction capacity as well as more difficulty accessing development finance.
“Although more stock is needed for the America’s Cup, the supply response to growing demand in the CBD to date has been slow and what supply there has been has been met by more owner occupiers who are less willing to rent units out than investors. Compare this with previous apartment cycles when 86% of the total units developed between 1995 and 2007 were for rental investment purposes.”
A total of 607 apartments were completed during 1999 and 2000 in the lead up to the 2001 regatta.
The 2021 America’s Cup event is expected to shine a spotlight on Wynyard Quarter too attracting further interest in apartment living, and the resulting increased demand may prompt new developments, although it is difficult to quantify this demand.
Moricz also points out that the pipeline is relatively small. Around 250 apartments are in the current active development pipeline in Wynyard Quarter. 164 units are due for completion this year and the rest due in 2020.
“Given construction, let alone marketing, timeframes, we suspect that it will be difficult to increase the pipeline of Wynyard apartment stock due for completion in mid-2020 before the America’s Cup starts to the extent required to cater for demand.
“Under this scenario, increased pressure will be placed on the commercial accommodation market, especially the serviced apartment sector where units are more suitable for longer term stays. In addition, we suspect that some of the existing owner occupier apartments will be made available for shorter term rentals and that Airbnb style accommodation will be subject to significant demand pressure from both visitors and the sailing community.”
For New Zealand/international news or global stories, follow us on Twitter.
ABOUT CBRE GROUP, INC.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com..