There are next to no new apartments in the pipeline for the Auckland CBD, but rental demand is rising, and that means a perfect storm is brewing, one expert says.
Apartment Specialists director Andrew Murray has a focus on apartments for work, but he also owns multiple CBD apartments, and lives in one in the heart of the city.
He said there were no new apartment complexes of any size in line for the CBD, due to the increase in construction costs and finance, and the looming impact of that lack of supply gave him déjà vu.
In 2010 and 2011 the CBD market was quiet, with no new supply coming on, but over the next five years immigration went from 3400 per year to 64,600, he said.
“Rents skyrocketed upwards, and apartment prices doubled, or even trebled.
“Now, things are starting to feel similar, like the calm before the storm, because immigration is booming, so rental demand is up, but no new apartments are being built.”
Barfoot & Thompson’s latest quarterly rental data showed rents in Auckland Central rose by 5.86% over the year to June, but Murray said that in reality CBD rents had increased more.
Rather than looking at average rents across all rentals in an area, he recorded every rent achieved in every apartment complex daily, and that analysis showed CBD rents grew about 20% over the last year.
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Rents for Auckland CBD apartments have increased signficantly over the last year.
In the city’s largest apartment complex, Zest, the average rent for a two-bedroom apartment, without a car park, was $380 a year ago, and now it was $480, for example, he said.
Trade Me Property’s latest figures showed the median weekly rent for an apartment in Auckland city was at a record high of $575 in June, up $80 from the year prior.
Murray said the equation of high rental demand, but low supply, would start to tempt buyers back to the market, and eventually translate into pressure on prices.
But high interest rates, bank testing rates of around 9%, and investor loan-to-value ratios of 35% were holding buyers back.
“Another CBD boom will come, although it will build slowly, and won’t be as big as the last one,” he said.
“This part of the market was hardest-hit by Covid and prices fell, so CBD apartments are reasonably priced, and it’s a good time to buy before the market heats up again.”
The current pipeline of new supply for the CBD was extremely low, CBRE associate director of research Tamba Carleton said.
While there were 122 apartment projects under construction across the Auckland region, only two of them were in the CBD.
In contrast, at the height of the apartment boom around six years ago, there were 30 projects under construction in the CBD, she said.
“Developers do have sites, but they are waiting for market conditions to be more conducive to new developments before they get under way.
“It means the numbers of apartments actually coming on stream over the next one to two years will be very limited.”
CBRE’s figures showed that around the region there had been an increase in the number of apartment projects abandoned at the construction stage, and pre-sales had also fallen over recent years.
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An apartment in this character complex on Wolfe Street in the CBD sold for $590,000.
But the apartment market had been more active than the drop in pre-sale figures suggested, she said.
“There has been an increasing proportion of public sector and purpose built rental apartments coming through which form part of the pipeline, but are not available for pre-sale.”
Of the 122 apartment projects currently under way, 15 were on the CBD fringe, but 104, or 85%, were in the suburbs.
Earlier this year, CBRE research showed that while the CBD had long dominated Auckland’s apartment market, there would soon be more apartments in the suburbs.
City Sales sales manager Scott Dunn said suburban apartments were a good option for people who had been priced out of houses, but wanted to live in the suburbs.
There was more supply coming on to the market in that space, but it was in a different price bracket, and aimed at owner-occupiers, rather than investors, he said.
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This two-bedroom apartment on Eden Crescent in the CBD sold for $750,000 to an owner-occupier.
“They also tend to be three to four floors, and that does not make a big dent on the supply side overall, as opposed to the type of CBD complex which has up to 200 apartments.”
CBD apartments had less appeal to owner-occupiers, but they provided more affordable rentals well-suited to students and migrant workers, he said.
“The market fell into a hole during Covid, when vacancies soared and rents tumbled, but it is recovering strongly and now there’s a shortage of rentals. We have just two vacancies in our portfolio, for example.”
That situation should be attractive to investors, who made up 70% to 80% of the CBD market, Dunn said.
“Over the March to June period, it has been a tough slog with no-one at open homes, and very few people looking to buy.
“But over the last month, people have been turning up at open homes again, and auction activity is up with some competitive bidding across all types of apartments.”
That had led to some good recent sales, but little change in sale prices overall, he said.
“An average one-bedroom apartment with a car park should cost around $450,00, while an average two-bedroom with a car park should be around $650,000.
“Based on Volt apartments on Queen Street, a standard two-bedroom, investor-style apartment would be around $320,000.”
Bayleys apartment expert Suzie Wigglesworth said there had been a pick-up in CBD apartment sales in recent months, as was often the case when people thought the bottom of the market was near.
”You have traders moving stock on, and people buying because they think prices will go up again.
”Another factor is that the foreign exemption certificates some complexes have will expire on August 22, and so the developers will be leveraging that with overseas buyers.”
There had been no new developments in the CBD for some time, and there eventually would be a lag effect from that, she said.
”But the market is not feeling the effect yet because there is still some residual stock left over, and coming through.”
