What’s determining where Melbourne’s next apartments will be built

City amenities and lifestyle offerings are proving to be the draw that can push individual unit prices up to the point where the equation makes sense for those looking to develop in the apartment market.

Hamish Burgess of Cushman & Wakefield particularly pointed to waterfront locations as value-adding sites that can “re-rate residential revenues in their respective locations”, though he noted that such opportunities are few and far between.

Alongside Cushman & Wakefield’s Daniel Wolman and Joe Kairouz, he is currently marketing one such site in Port Melbourne, which he feels exemplifies the type of opportunity that’s finding favour among developers.

Already approved for a six-level project designed by Wood Marsh, he noted that it’s “de-risked” sites such as this that are in “high demand, as the construction cost increases can be offset by elevated apartment prices in this desirable location”.

Elsewhere, however, the forecast for new stock coming to the market is grim. According to recent analysis by NAB’s head of property development finance, Jason MacKenzie, the continued high price of land has simply driven developers out of some markets.

He pointed to data from Knight Frank indicating that since 2019, stock completion has fallen from thousands to hundreds to zero in multiple areas of Melbourne.

“Developers today are finding it increasingly difficult to sell apartments off-the-plan, and to make matters worse, to justify taking the risk/reward, they need to sell at much higher prices. Many developers simply aren’t prepared to ‘roll the dice’ and we’ve seen numerous projects pulled after considerable sales campaigns because of feasibility pressure,” MacKenzie said.

The outer east is one such market to see stock completions fall, as did the middle east and inner south-east.

To meet demand, Melbourne is estimated to need in the range 15,000 to 18,000 new apartments each year, according to a report by Charter Keck Cramer. Current approvals are nowhere near that high.

MacKenzie believes that targeted support from the government across the construction sector could make strides to bring back development activity across the city.

He opined that to bring heat back into the apartment development, governments could look at reinstating a level of stamp duty concession for buyers prepared to purchase off-the-plan, delaying projects to free up labour for non-government work, and continuing to streamline the planning system.

He noted that incentivising the intake of skilled foreign workers and industry consultation could also play a role in giving apartment development a boost.