Apartments shed secondary status amid BTR surge

A surge in build-to-rent (BTR) developments across Perth is becoming a clear indication that the apartment market has matured past the point where it can be dismissed as a fallback option for buyers priced out of a house.

The latest proposal – a 174-apartment project in Northbridge backed by the State Government – has pushed Western Australia’s BTR pipeline to new heights, spanning social, affordable and private rental products.

At the same time, build-to-sell (BTS) developers are moving at scale, with Burgess Rawson’s latest Perth Apartment Market Snapshot revealing that as of March 30, there were more than 3200 apartments across 34 projects under construction across the Perth metropolitan area, with an additional 6900 apartments holding planning approvals.

The two delivery models are being driven by different investors reaching the same conclusion.

BTS buyers are responding to price growth, with Burgess Rawson recording a 26.1 per cent annual rise in Perth’s median unit price over the year to the end of March to $746,779 and a vacancy rate of two per cent.

BTR developers commit capital for the long term – often more than 15 or 20 years – which means their activity reflects a settled view about Perth’s rental fundamentals, rather than a reaction to any short-term price movements.

Both are responding to the same set of underlying numbers, which have stayed strong regardless of what is happening to sales prices more broadly.

Over the past five years, Perth unit rents have grown 61.1 per cent against 54 per cent for houses – a pattern also evident nationally, where units have outpaced houses on rental growth, according to Cotality’s latest Quarterly Rental Review.

That divergence in rental growth is the actual foundation of the current BTR wave and explains why the sector has expanded now, rather than earlier in the cycle.

And while Perth’s broader property market has cooled somewhat, with Cotality’s September Monthly Housing Chart Pack recording a 3.2 per cent quarterly decline in dwelling values, annual growth remains strong at 15.6 per cent.

The BTR case, however, was never built on capital growth, because it depends on rental fundamentals, and those have continued to strengthen regardless of what is happening to sale prices.

Apartments in Perth have long been treated as the option chosen when a house is out of reach.

The scale of capital now committing to the sector on the strength of yield and rental demand, rather than price speculation, suggests this assumption no longer holds.