What's driving Melbourne's development site sales frenzy?

Traverse the inner city and you may notice a plethora of properties with 'For Sale' placarded over their frontage. The rise of Asian property developers in the Melbourne market has led to an unprecedented number of development sites offered for sale, with their owners expecting heightened returns as local and offshore developers jostle for premier pieces of real estate.

Market conditions are currently very receptive to new residential projects as tower after tower seem to find the necessary pre-sales to advance to construction. This is in part attributed to offshore buyers who view the Melbourne market as a safe investment, bolstering overall sales numbers. While there remains a slight concern over an excess of rental dwellings as many projects advancing to construction simultaneously, these projects are underpinned by strong sales to both local and overseas individual investors.

Consequently developers desire to invest in new sites and projects remains high, hence the heightened level of properties offered for sale as their owners look to cash in. Look no further than 58-66 Dorcas Street as a prime example. Subject to a planning application which has yet to receive endorsement, the owners have seen it fit to offer the site for sale in the hope of receiving a higher return than would normally be expected.

Image © Hayball

Urban Melbourne sourced Director for Retail Investments, Mark Wizel, from industry heavyweight CBRE for his thoughts on the topic:

I think that a lot of land owners are responding to the increasingly growing appetite from offshore developers, mainly based in Singapore, China and Malaysia who are looking to deliver residential projects in a city which is quickly becoming regarded as one of international scale.

The emergence of Asian based buyers for apartments on an off the plan basis is also fuelling the confidence not only of offshore developers to secure land for new projects but also spurring on local developers who are looking to benefit from the same emerging trend in terms of off the plan apartment buyers. We anticipate continued supply of quality sites to come to the market between now and the end of the year.

Mark Wizel, Director for Retail Investments, CBRE

Another factor attributing to the development site sales frenzy is the increased size of contemporary developments. The general consensus amongst local developers is that now more than ever development sites have the potential to yield maximum 'bang for buck.' Under the tenure of the current State Government, denser, taller approvals have become the norm; one only needs to consider the impressive number of 200 metre plus residential towers currently proposed/approved in Melbourne.

A perfect example is 51-65 Clarke Street Southbank which is currently listed with CBRE for sale. 54 Clarke Street sits directly opposite (below left) and essentially forged the way in terms of setting a height precedent of 74 levels/244 metres for this pocket of Southbank. Where in the past 51-65 Clarke Street would likely have become just another 30-40 level Southbank apartment building, CBRE are marketing the site with the associated render (below right) which suggests the potential exists to deliver a 90 level residential monolith.

Images © BKK Architects & CBRE

Another case of an upsized development is that of 110-112 Franklin Street which was recently sold by CBRE to offshore interests. The associated, approved 12 level tower which included a compliment of hotel rooms now looks to be the subject of a far large residential tower. Point Architects have recently published images of what looks to be a tower in excess of 40 levels on the correlating site with 267 apartments proposed.

The design may or may not be intended for 110-112 Franklin Street, but it does demonstrate the general trend of developers seeking larger residential proposals which in turn explains why there's immense competition to secure these sites.

Images © CBRE & Point Architects

Voracious developers, strong local and overseas buyers underpinning sales demand, a shift in the paradigm toward higher density living, favourable local planning conditions and the lure of Melbourne itself; it all adds up to a perfect storm of factors heralding an unprecedented boom in apartment development. And those who own these development sites stand to gain handsomely.

With the market dynamics the way they are there's no reason why local and offshore developers won't continue to scrap it out for Melbourne real estate, producing sustained heightened sales and high returns for the vendor in the process.

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