Snapshot Adelaide Apartment Market

Snapshot Adelaide Apartment Market December 215 Executive Summary Our View The Adelaide apartment market is undergoing considerable growth, particularly in the CBD where around 4 apartments will complete in 215 and a further 1,5 apartments are expected to complete over the following two years. Inner suburban markets together with new masterplanned communities are also starting to see apartment product as part of the residential mix. Median sales prices for apartments have been relatively stable over the last five years. Around 8% of sales have transacted at less than $5,. This highlights the shallowness of the market for higher priced larger apartments in the CBD aimed at owner-occupiers. Gross rental yields are comparatively high in both Greater Adelaide and the CBD for apartments, although there has been limited growth in median rents in recent years. The low interest rate environment is supporting the residential market, although this is partially offset by concerns in the local economy, particularly the loss of manufacturing jobs and elevated unemployment rate. To date, this is impacting primarily on demand for detached dwellings in the northern suburbs of Adelaide rather than the inner city apartment market. The Greater Adelaide apartment market, while growing, still accounts for a relatively low proportion of total dwelling stock (only 11% of total dwellings compared to 27% in Greater Sydney). The relative affordability of apartments to investors, given the considerable stock on the market for sale under $4,, has also been an important driver of demand, as has the off-theplan stamp duty concessions of up to $15,5 per apartment, and low interest rate environment. While new supply in 215 through to 217 is well above longterm trends, JLL is of the opinion that the increased supply reflects a maturing market characterised by greater acceptance of higher density living, and that the higher levels of activity is sustainable, at least in the medium term. This is in line with eastern seaboard capital city markets, which have seen significant growth in new apartment projects in recent years. Moving forward, sustained growth in demand will be contingent on a range of inter-related factors, including: The low interest rate environment continuing; Extension of stamp duty concessions beyond the current cut-off date of June 216; and Continued growth in investment from off-shore sources, which has been relatively low compared with Melbourne and Sydney. Adelaide Apartment Market - December 215 1

Number of Apartments Competed Economic Overview The South Australian economy remains patchy. Domestic consumption and spending is trending upwards and a sustained lower AUD/USD rate is aiding South Australian exporters. However, a looming spike in blue-collar unemployment as a result of closures of Holden at Elizabeth and Alinta at Port Augusta and Leigh Creek may dampen overall business confidence. State Final Demand in South Australia grew by 1.3% year-onyear in 2Q15, marginally below the March quarter result of 1.4% y-o-y growth. The Reserve Bank of Australia held the official cash rate at the record low of 2.% at their November meeting. The ongoing low interest rate environment has had a positive impact on the South Australian economy and the housing market, by lowering mortgage repayments and improved discretionary spending. Retail spending in South Australia has expanded in 215. As at September 215, retail turnover had increased 4.6% year-onyear; the second strongest rate nationally behind New South Wales (ABS: 851.). Consumer confidence is still being impacted by global headwinds including uncertainty in China and domestic issues such as the Australian labour market. The Westpac-Melbourne Institute Consumer Sentiment remains below the 1 neutral mark, despite improving in October to 97.8, from 93.9 in September. The state unemployment rate is uncomfortably high, at 7.5% as at October 215, well above the national unemployment rate of 5.9%. While these economic concerns have weighed on the residential sector, particularly demand for detached houses and land in Adelaide s northern suburbs, the inner city apartment market has continued to see strong levels of activity. It is forecast that South Australian GSP will expand by an average of 1.3% over the next two years before accelerating to 2.3% through FY17-18. (Deloitte Access Economics Business Outlook June 215). Supply Apartment completions in the Adelaide CBD are expected to reach 4 in 215, the highest level since 21. However, this level of activity is the beginning of a sharp rise in expected completions over the next two to three years. JLL Research estimates there are over 1,5 apartments in the CBD with a high probability of completing in 216 and 217. These projects are either already under construction and due to complete in the next two years or well advanced in project marketing and pre-sales. Most of the new supply will be completed in 217. There are a further 3, apartments in the project pipeline, with around 2,2 apartments already having secured development approval. This highlights significant growth in developer activity for multi-storey apartment development in the Adelaide CBD. The strong growth in apartment supply is coming off a relatively low base with only modest levels of completions between 211 and 214. Nevertheless, there is now heightened competition amongst projects to achieve sufficient off-the-plan sales to secure project financing. Figure 1: New Apartment Completions Adelaide CBD, 28-215* 5 45 4 35 3 25 2 15 1 5 28 29 21 211 212 213 214 215 Emerging Hot Spots Source: JLL Research The following chart highlights four of the emerging hot spots for apartment projects outside of the Adelaide LGA. Three border the Adelaide Parklands while St Clair is a new estate on the former Cheltenham Racecourse. By comparison to the Adelaide CBD, the number of projects and size of projects in suburban locations are relatively small. However, there is an emerging apartment market outside of the CBD that is attracting first home owners and investors. To date, it has largely been price driven with most apartments being priced at below $45,. By comparison to the Adelaide CBD, the number of projects and size of projects in suburban locations are relatively small. However, there is an emerging apartment market outside of the CBD that is attracting first home owners and investors. To date, it has largely been price driven with most apartments being priced at below $45,. Bowden Urban Village is expected to eventually accommodate over 3,5 residents in around 2,4 dwellings, primarily apartments. Development to date has been primarily 3-5 storeys but is set to get progressively taller. Other sites in the suburb are also expected to be targeted for residential development. Adelaide Apartment Market - December 215 2

Jun-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Gross Rental Yield (Units) Number of apartments Jun-5 Approvals (12 month rolling average) Apartment (% of Total) The main corridors in Prospect, Churchill Road and Prospect Road, have seen considerable interest in small scale three and four storey apartment buildings since its rezoning to Urban Corridor Zone in 213; Likewise, Kent Town has benefited from similar rezoning, which encourages mixed use development up to 1 storeys in parts of the suburb. Projects such as East Park on Dequetteville Terrace (17 dwellings) is set to commence construction soon; St. Clair has attracted apartment projects adjacent to the new shopping centre and St Clair Train Station. St Clair is located 8km north-west of the CBD. Figure 3: Trends in Building Approvals Approvals by Residential Type in Greater Adelaide, Jun-5 to 8, 7, 6, 5, 4, 3, 2, 1, 25% 2% 15% 1% 5% % Figure 2: Hot Spots for Apartment Development New Apartment and Townhouse Projects by Suburb, as at Nov-15 7 6 5 4 3 2 1 Bowden* Prospect** Kent Town / St Clair Norwood*** 215 Completions Under Construction Approved Proposed Source: ABS, JLL Research Notes: *Bowden Urban Village is expected to include around 2,4 dwellings over the next 12 years; ** Includes Ovingham; *** Includes College Park and Hackney Apartments are becoming a more important part of the Adelaide residential market, reaching a peak of 24% of all residential building approvals for the year to March 215. However, compared to other states, the proportion of higher density apartments to total new private dwellings is still low. In Greater Sydney, apartments represented 55% of all building approvals for new dwellings in the year to June 215, while in Greater Melbourne, the proportion was 43%. Yields House Townhouses Apts % Apts (RHS) Source: ABS, JLL Research Gross rental yields have been reasonably stable over the last four years, ranging from 4.5% to 4.8% across Greater Adelaide, according to CoreLogic RP Data. Yields in the Adelaide CBD market have been slightly higher over the same period, ranging from 4.5% to 5.2%. Compared to the Sydney and Melbourne unit market, yields in Adelaide are relatively high. Yields have been tightening in the Greater Sydney and Melbourne markets over the last 2 years to stand at 4.2% and 4.1% respectively as at June 215. Figure 4: Gross Rental Yield Adelaide CBD vs Greater Adelaide, Jun-5 to 5.6% 5.4% 5.2% 5.% 4.8% 4.6% 4.4% 4.2% 4.% Adelaide LGA Greater Adelaide Source: CoreLogic Source: JLL, RP CoreLogic Data, JLL RP Research Data Adelaide Apartment Market - December 215 3

Jun-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Median Annual Unit Price ($) Jun-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Rent ($ per week) Annual rental growth (%) Rental Rates Median rents for units across Greater Adelaide have also been relatively stable over the last four years, moving from $285 per week in June 211 to $3 per week in June 215. Over the same period, median rents for units in the Adelaide CBD have moved from $41 to $43 per week. Rental growth has generally been below the rate of inflation, meaning that there has been no real rental growth over the past four years. Figure 5: Median Asking Rents and Rental Growth Greater Adelaide, Jun-5 to $35 $3 $25 $2 $15 $1 $5 $ Figure 6: Median Units Sale Prices Greater Median Adelaide Unit Price: and Adelaide CBD, vs Jun-5 Greater to Adelaide $5, $45, $4, $35, $3, $25, $2, $15, $1, $5, $ 18% 16% 14% 12% 1% 8% 6% 4% 2% % -2% -4% Weekly median rent (LHS) Rental value growth (RHS) Source: CoreLogic Source: JLL, RP CoreLogic Data, JLL RP Research Data Apartment Values The median value of a unit in Greater Adelaide was $339, for the 12 months to June 215, reflecting a 4% increase over the year to June 214 ($326,). The median value of units in Adelaide CBD was $444, in the 12 months to June 215, up from $429, for the year to June 214 (2.6% annual growth). We note that median sales prices in the Adelaide CBD have been quite volatile, with the timing of new product settling together with the quality and size of new units having an impact on median sales prices. The median sales price peaked in June 21 at $458, (annual median price). The market in Adelaide for high priced luxury apartments is quite shallow. The vast majority of apartments in the Adelaide CBD transact for less than $6,, with the investor market most active in apartments priced at below $5,. Buyer profile Traditionally, around 75% of the Adelaide CBD apartment market have been investors, and the majority of investors have been local, South Australian investors. However, off-shore investors are a growing segment of the market, and are particularly well represented in projects that have been developed by Chinese developers (Aria, Rowland Place). We note that the level of investment activity from off-shore purchasers is still relatively small compared with interstate markets such as Melbourne and Sydney. The National Rental Affordability Scheme (NRAS) has been a significant driver in some developments in the Adelaide CBD. These projects have either recently completed or are under construction and due to complete over the next six months. Owner-occupiers have been a key target market for smaller projects of around 5 units or less, with the proportion of owner-occupiers typically increasing with value. However, young professionals working in the CBD have become an important market for smaller, lower priced units and compete with investors for these entry level apartments. Professional couples with no children are the largest segment of the owneroccupier market in the Adelaide CBD while empty nesters are a small but growing market. Inner Metropolitan Rim Structure Plan and Inner City Urban Growth In September 212, the State Government released the Inner Metro Rim Structure Plan. This Structure Plan reinforces and refines the objectives of the 3-Year Plan for Greater Adelaide, focussing on Adelaide s inner suburban areas adjacent to the Park Lands. Both state and local government have recognised the importance of this area for significant infill development, characterized by higher density mixed-use developments close to public transit and employment opportunities. The Inner Metro Rim Structure Plan seeks to achieve growth through mixed use infill along transit corridors and four key city corner nodes; Kent Town, Bowden, Keswick and Glenside. Development Plan Amendments are progressively being introduced to provide for increased mixed use development. Residential and commercial zones in the inner suburbs have been rezoned to a new Urban Corridor Zone. The results are now being seen with more apartment projects being proposed in suburbs such as Bowden, Kent Town, Norwood and Prospect. Furthermore, Adelaide s traditional Fringe Office Market has also been rezoned to Urban Corridor Zone, allowing for mixed use projects of up to 1 storeys. Greater Adelaide Adelaide CBD Source: JLL, CoreLogic RP Data Source: CoreLogic RP Data, JLL Research Adelaide Apartment Market - December 215 4

The state government s Development Assessment Commission (DAC) is also the development authority for the following developments: In the City of Adelaide, exceeding $1 million in value; Within the inner metropolitan, exceeding four storeys in Urban Corridor Zones ; and Within the Bowden Urban Village. Outlook JLL expects to see increased activity in the apartment market outside of the Adelaide CBD, with new markets emerging in the inner ring of suburbs surrounding the Adelaide Parklands as well as increased interest for apartments in masterplanned communities such as St Clair, Lightsview, Bowden Urban Village and West at West Lakes. The short-term outlook in the Adelaide CBD is strong, with record levels of development approvals, large projects under construction and solid off-the-plan sales. Demand for new apartments in Adelaide may be impacted by any scaling back of stamp duty concessions for off-the-plan sales, which at this stage is due to end on 3 June 216 (currently up to $15,5 saving on a $5, purchase). However, this may be off-set by increased investor interest from off-shore, which has been a significant driver of demand in both Melbourne and Sydney. There may be elevated pressure on vacancy rates as more investment stock comes onto the market. This may in turn keep rental growth quite subdued. We are also seeing increased interest from developers for higher end product in premium locations, targeting the owneroccupier market. While this market has been quite shallow, recent and planned future investment in the Adelaide CBD and environs aimed at increasing the vitality of the CBD is expected to drive growth in owner-occupiers seeking a CBD apartment lifestyle. For further information, please contact David Snoswell Director Strategic Consulting / Research SA Residential Markets t: +61 8 8233 8843 david.snoswell@ap.jll.com Tracy Gornall Director Valuations & Advisory, SA t +61 8 8233 886 tracy.gornalll@ap.jll.com JLL Adelaide Grenfell Centre Level 22, 25 Grenfell Street Adelaide SA 5 Australia +61 8 8233 8888 This document is confidential to the recipient of the document. No reference to the document or any part thereof may be published, stated or circulated in any communication with third parties without prior written approval from Jones Lang LaSalle. This document has been produced solely as a general guide and does not constitute advice. Whilst the document has been prepared in good faith and with due care, no representation is made for the accuracy of the whole or any part of the document. Jones Lang LaSalle accepts no liability for damages suffered by any party resulting from their use of this document. www.jll.com.au Adelaide Apartment Market - December 215 5