Demographics key to choosing residential development sites

Apartment construction now provides the impetus for much of the growth in construction and will be an important driver of the economic in 2013, which can also be linked to the demand for development sites.

And so against this background let's continue our conversation with one of my associates, Shane Dargue, from Colliers International, Melbourne.

By looking at some current trends that are starting to show up in the Melbourne CBD and in Sydney we can gauge how headline demand impacts the wider market for development sites.

As might be expected, it’s an area that demographics will always influence and where trends are not always universal because varied pockets of demand are driven by particular local conditions, which Shane refers to here.

“Across the inner-ring suburbs, we see that because of the mixed demographics associated with these areas, which are common to all capital city markets, development sites have the potential to be very desirable, because it is usually possible for the end project to deliver a good cross section of apartments. If the mix matches market expectations then these sites have a lower risk-profile and as such attract ongoing support.”

Shane also believes that Melbourne’s CBD market is now partly driven by international factors, while land values by direct comparison to Sydney’s CBD residential market remain competitive.

“For two years running in 2011 and 2012 Melbourne has rated as the world's most livable city by the Economist Intelligence Unit, heading a list of 140 cities worldwide. This combined with strong growth predictions, (Melbourne is set to over take Sydney as Australia’s major city by 2020) means that foreign investors are taking a keen interest. Investors in particular from Asia and the USA are attracted by these positives and the government stated intent to promote and support Melbourne’s CBD as a 24/7 location, which makes it even more attractive to offshore buyers.

“As a result the CBD residential market is now being driven by foreign investors and despite a predicted spike in supply in 2015 there is still opportunity as Melbourne’s population continues to grow. Because the CBD market is driven less by local demand by comparison with the inner-ring and outer suburbs this reflects in the demand for development sites.

“We also need to keep in mind that any development site purchased today would not deliver end product for three to five years depending upon its scale and individual circumstances.”