Investors chase apartment blocks as rents continue to soar

Rents are predicted to increase by 30 per cent over the next five years.

Apartment blocks in Sydney are experiencing higher than usual demand amid Sydney’s rental prices rapidly rising.

New data collated by CBRE’s Market Outlook Report in February forecasts rental prices in Australian apartments to grow by circa 30 per cent over the next five years.

While rents usually keep pace with inflation over the long term, making commercial real estate attractive in high inflation periods, real estate assets have fallen in values when rate went up – inhibiting economic activity.

An aerial view of 165 – 167 Lyons Rd, Drummoyne

Over 1,800 enquiries have been registered for six apartment blocks currently for sale; leading some investors to capitalise and acquire entire blocks to hedge against inflation.

The sales of 165-167 Lyons Rd, Drummoyne, 24 Wisbeach St in Balmain, and 129-131 Bayswater Rd in Rushcutters Bay are being managed by CBRE’s Toby Silk.

“Investors are attracted by the rental growth narrative to increase their return and provide a hedge against higher cost of living,” Mr Silk said.

The apartment block at 129 – 131 Bayswater Rd, Rushcutters Bay.

“The apartment blocks close to transport, educational establishments, employment hubs and shops are of particular interest. Many of the properties are not actively managed with owners not bothering to increase rents.

“This allows an incoming purchaser to increase their return in real time by adjusting rents to market. These increases can be staggering in the current market.”

Recent data conducted by SQM Research indicated residential apartment rentals had experienced a 26.9 per cent growth over the last 12 months.

Apartment blocks are in high demand as rents dramatically increase.

This was notable as the growth was set against the inflation rate of 7.8 per cent – the highest since 1991.

The research notes that the rental crisis is set to worsen by the increase in the migration cap and the expected 40,000 Chinese students to come to Australia as their government bans online study at foreign universities.

“It is also forecast that apartment rents will continue to grow due to a shortage of apartments for lease.

“This is largely caused by a significant amount of investor apartments being sold to owner occupiers over the past two years, fuelled by huge borrowing capacity from record low interest rates.”