Investor demand grows for entire apartment blocks amid record low rental vacancies

As the rental market crisis deepens, investor demand for entire apartment blocks is surging around the country. 

In Sydney, two recent unit block sales netted over $12 million, indicating robust buyer interest.

One was an apartment block and two townhouses at 313 Bronte Road, Waverley.

Vendor Danny Caretti rented an apartment at the site in the 1980s, and eventually bought all of them after striking up a friendship with landlady Ena Harper.

He added two townhouses, and further approvals for a storage room. The property was recently sold in one line for $9.25 million by Knight Frank and Sotheby’s International.

Danny Caretti sold the block of units at 313 Bronte Road, Waverley for $9.25 million. Picture: Supplied

Agents said the site generated 140 enquiries and six offers during the campaign, and offered over $300,000 in estimated total annual income.

“The interest was from a mix of developers and investors, mostly residential unit block investors,” Knight Frank’s James Masselos said.

Mr Masselos said record demand for rentals, and growth in residential rents, was fuelling demand for unit blocks, especially in Sydney’s east.

“Investors are moving their appetite towards unit blocks because they’re a safe investment,” he said.

“Everyone feels there’s a lot of capital appreciation associated with these assets. There’s never any vacancy and no leasing risk at all.”

The block of four apartments at 88 Francis Street, Bondi Beach is on the market for $6.5 million. Picture: Realcommercial.com.au

The agents have another four unit blocks for sale in Sydney, collectively valued at around $30 million, which are also expected to yield strong results.

These include an art deco block of four apartments at 88 Francis Street, Bondi Beach, selling for $6.5 million, and a block of six apartments at 3 Moore Street, Bondi, for $7 million.

PropTrack data shows unit price growth has significantly outpaced that of houses over the past year.

In the year to January, national weekly house rents rose 10.5%, or $55 per week, while unit rents surged 17%, or $80 weekly.

Meanwhile, nationally the rental vacancy rate is 1.2%.

CBRE manager Paul Grasso, who specialises in apartment block sales in Sydney’s east, predicted apartment blocks were a hot ticket for the market over 2024.

The block of six apartments at 3 Moore Street in Bondi is seeking offers of $7 million. Picture: Realcommercial.com.au

With the rental squeeze unlikely to improve soon, buyers are cashing in, typically seeking long-term growth.

“We’ve got a building in Coogee rented for $450 during Covid which is going up to $650. If you do a refurbishment on that, you’re probably talking $750 to $800 – almost a 40% increase,” he said.

Savvy buyers also understand that overseas migration will fuel further demand for housing and continue to push rents higher, he said.

In Melbourne, unit blocks are sought after with the recent settlement of 12 units at 225 Domain Road, South Yarra, for $10-15 million. The site was bought by a developer off market.

“That does happen quite a bit because they’re quite scarce and often sell without being advertised,” Woodards South Yarra director Luke Piccolo said.

“It was an incredible transaction because each owner achieved at least a 20% premium on what their apartment was worth individually.”

The 13-unit block at 31-33 Millswyn Street in the Melbourne suburb of South Yarra is going to auction on June 20. Picture: Realcommercial.com.au

A trend towards unit owners combining to sell their properties in a line is increasing, Mr Piccolo added, enabling them to yield more than if they sold individually.

Another 13-unit block in the same coveted pocket, close to the Royal Botanic Gardens, at 31-33 Millswyn Street, is also being auctioned from $4.6 million.

Mr Piccolo said downsizers seeking larger apartments in prime locations are driving demand, as well as those keen to take advantage of the land value.

“People are finding they can pick up a block of 635sqm, in this case for example, which would be cheaper than picking up the equivalent house with a home existing on it,” he said.

The 1313sqm site boasts three street frontages and is right in front of the ferry terminal.

The Millswyn Street unit block auction has a price guide of $4.6 million to $5.06 million. Picture: Realcommercial.com.au

“The first day it went live, I had 55 phone calls in a row,” Mr Eleveld said.

Most enquiries were from long-term investors looking for high-yield returns, keen to capitalise on Hawthorne’s performance over the years, he added. Mr Eleveld said limited rental supply was fuelling the interest.

“Mortgages right now are so expensive so people are looking to rent, but there’s not a lot on the market, which means you can push your rents a lot higher,” he said.

“And with the construction industry the way it is, it makes it really difficult to add any more supply to that market.”

“There’s quite a few that have come to the market, particularly in Sydney’s eastern suburbs,” she said.

The river-facing block at 1-7/112 Lindsay Street in the Brisbane suburb of Hawthorne is on the market. Picture: Realcommercial.com.au

Ms Rader said investors, particularly commercial and residential investors, were taking advantage of low residential rental vacancies.

“Around Australia the vacancies are very low, rents are growing very rapidly and the prices on houses and units are going up,” she said.

“If you can buy an investment you know is going to have a good track record in terms of rental growth, high occupancy, and then further down the track you’ve got a really robust exit strategy … it becomes a very attractive investment opportunity for a lot of people.”

Ms Rader said many buyers were private investors passing the property onto family members so they have a place to live while house prices are rapidly growing.

Ms Rader said families often hold onto the properties long term before they are sold.

She also pointed out the huge growth in build-to-rent properties, and likened full apartment blocks that have not been strata subdivided as essentially the same thing.

“We can see all this institutional money going into build-to-rents because they can see residential as a really strong income stream. This is something private buyers particularly, have seen for a really long time in purchasing these entire blocks of units,” she added.