Project pipelines remain strong across the commercial property development sector with clear opportunities accessible to forward-thinking brokers and property developers.
Experts are witnessing the easing of construction costs, demand for apartments, non-bank lenders’ role in the market, and areas of opportunity.
Positive news on construction costs and building materials
While construction costs are forecast to continue climbing across Q4 2022, experts believe they will ease in 2023.
According to Housing Industry Association chief economist Tim Reardon, there has been a marked improvement in the availability of some building materials—including timber—and more builders are experiencing lessening supply pressures, The Urban Developer reports.
Trilogy Funds’ head of lending and property assets, Clinton Arentz, is observing this in his dealings with brokers, developers and third-parties. “The easing construction cost inflation is enabling developers to finalise feasibility models with more certainty,” he said.
He said that projects in their loan book were generally tracking well.
“We have not encountered any recent delays with product suppliers and sub-trade markets are more readily available,” Arentz said.
“An uptrend in building approvals is also visible, thus, projecting a steady volume of construction commencements.”
Rental crisis to sustain demand for apartments
SQM Research reported in September that national rental vacancy rates for August were less than 1 per cent.
According to Master Builders Australia, this pressure is unlikely to ease until at least 2026, given that 200,000 new homes would be required each year to accommodate long-term population growth.
Students and other temporary migrants returning to Australia are exacerbating the apartment shortage in capital cities. Experts such as the Regional Australia Institute report that smaller cities and towns also have a major undersupply of affordable accommodation.
This has sparked an increasing need for development finance.
Trilogy Funds is currently funding more than 150 property development projects, of which more than 30 per cent are for residential apartment developments (as at November 30 2022).
A high level of experience in this sector means the Trilogy Funds team is able to tailor loan terms specifically to projects, best enabling developers to reach their projects goals.
Non-bank lenders playing a vital role in the market
As banks pull back from property development finance, non-bank lenders are playing an increasingly central role, ranging from home loans to commercial construction loans.
Ross Perkins, a member of the Trilogy Funds lending committee and ex-head of M3 Property, says that non-bank lenders are an attractive finance option for those that are focussed on ensuring project momentum and reducing the time to turn soil.
For Trilogy Funds’ loan book, Arentz reports: “We currently have a solid pipeline of loans being prepared—most of which have commitment fees already repaid and consultancy reviews under way.
“Sales of projects have held up well for our loans and repayments are occurring, facilitating further lending opportunities via our pooled mortgage fund.”
Areas of opportunity for brokers & developers
Unsure where your next opportunity lies? Consider:
- Industrial and logistics: Australia has the tightest industrial and logistics vacancy rate in the world. The sector is attracting billions of dollars in foreign investment as short supply continues to create development opportunities, says Australian Financial Review reporter Larry Schlesinger.
- Renewable energy: Regional property markets are set to be boosted by Australia’s renewable energy boom, according to InvestorKit’s September white paper, including Toowoomba, Rockhampton, Tamworth-Armidale, Dubbo, and the Latrobe Valley.
- Social and affordable housing: Councils and governments have signaled intentions to sharply increase investment in social and affordable housing, and the market for Specialist Disability Accommodation is developing rapidly.
- Office: ‘Green’ office buildings with high energy ratings are proving increasingly popular with tenants and investors, while demand for high-quality office space in city-fringe locations is intensifying, The Urban Developer reported.
- Retail: According to Colliers, demand for big-format retail sites is strong. More Woolworths Metro, Coles Central and Aldi Corner Store outlets are also making a comeback.
Trilogy Funds offers tailored property development finance of $3 million to $40 million to the residential, commercial, industrial and retail sectors.
Article source: www.theurbandeveloper.com