THE luxury rightsizing market is heading for a shortage in supply, as the segment of the apartment market dominates residential activity.
According to Knight Frank’s Rightsizing Report 2022, downsizing to luxury apartments is appealing to many Australians, with the residence type currently in the top 5% of the market.
“Rightsizers have remained active in the Australian property market over the past year, with prestige sales data highlighting the continually increasing appetite of buyers for both primary and secondary homes,” said Michelle Ciesielski, head of residential research at Knight Frank.
The report outlines three main reasons that these homes are in such high demand, households that are seeking a more low maintenance space that has room for entertaining, those that are looking for a home that is suited for leaving unoccupied for months at a time once international travels becomes an option again and those that are looking for a ‘co- primary home’, a home that is nearing on equivalent to their main house.
“Though these Australians are prepared to spend what it takes to fulfil their rightsizing requirements, the widening gap between this buyer demand and appropriate property supply remains concerning, and residential construction difficulties continue to delay delivery of new product,” added Ciesielski.
Since June 2015, both new and established prime apartments in major cities have grown in price by 36% and 31% respectively.
This price hike has been predominantly driven by the nation’s pipeline of new luxury apartments not meeting greater demand.
Only furthering this, the pipeline for new apartments in low-rise, mid-rise and high-rise developments across prime regions of the country are set to fall by more than 39% over the next three years.
This will be most easily observed in both Brisbane and Sydney, while the Gold Coast and Perth will alleviate some of this demand with moderate levels of new supply over the same period.
This has been an ongoing trend across the country since 2014 when the stock of suitable sites for residential apartment developments began to decline in earnest, with the COIVD-19 pandemic only increasing this phenomenon.
“The shortage of suitable product, particularly at the top end of the market where rightsizers play, has been exacerbated by developers unable to easily secure sites in prime locations adding to the highly pressurised buying environment across Australian cities,” added Ciesielski.
Increasingly, these buyers are also showing preferences for branded residences, with super-prime apartments seeing on average only 8.7 sales per year over the last decade, the first half of 2021 saw 8x this average, with 70% of these transaction occurring at Sydney’s Crown Residences at One Barangaroo.
“When considering rightsizers, developers throughout Australia will need to look into more ways to differentiate the services and amenities they provide to accommodate the diverse and specific nature of rightsizers’ requirements, and a branded residence can deliver this opportunity,” said Ciesielski.
Knight Frank’s Global Buyer’s Survey revealed that Australians are far more likely than the global average of 39% to buy into a branded residence, at 44%.
48% of these Australian respondents named service provisions and physical amenities as their leading motivator for seeking out a branded development.
“Although the pandemic encouraged standalone prime house price performance to overtake the apartment market, it also accelerated the concept of the co-primary home,” said Ciesielski.
Developers are meeting these buyers needs by creating more apartments in this segment with three-bedroom floorplans, with the three-year pipeline shifting from 21% in to 32% of projects with this configuration.
The report also highlighted car spaces as a major factor for buyers, with purchasers in Sydney where the market share of residences with over three car spaces at 12%, the premium between the average sale rate for a prime apartment with parking, $39,800/sqm, versus one without, $30,200/sqm is 32%. Melbourne has the second highest premium at 9.2%.
“Over the coming years, we will see increasing numbers of rightsizers who are seeking a low maintenance home as their main residence, given the transient global lifestyle that will return for many of the ultra-wealthy population,” concluded Ciesielski.
“This pent-up demand will continue whilst we know new luxury apartment delivery and sales listings remain shallow across almost every prime region of Australia.”