Sydney’s residential property market may have taken a dip, but a projected shortfall in new apartments within the next five years has led to one developer forking out more than $44 million on a large site in Parramatta.
An amalgamated lot consisting of 42 apartments at Sorrell Street across the river from the Parramatta CBD has sold for $44.5 million to a Sydney-based residential developer following a protracted sales process, which JLL director John Macree describes as a long-term ‘sign of confidence’ in the apartment market.
“This sale shows confidence, both in the residential development sector and in the overall Parramatta market,” said Mr Macree, who handled the sale with fellow JLL director Dylan McEvoy.
He has noticed an uptick in enquiries from developers in recent months.
“The larger developers are buying future [sites] to address the future undersupply,” he said, adding that the Sorrell Street site’s new owner would bide their time before submitting plans for a new development.
“[Buyers like this] aren’t going to be getting a DA and building in the next 12 months. This is people who are looking to the next five years,” he said.
The Parramatta sale consists of three apartment buildings on a 4012-square-metre site that is zoned B4 mixed use. It has the potential for a project with a gross floor area of up to 27,683 square metres, subject to council approval.
The result is one of the highest prices for a combined lot in the past two years, although it’s a far cry from the $80 million paid for an amalgamated site of apartments in Sydney’s Macquarie Park in 2017.
“We worked on the campaign for a year before taking the property to market in early 2018 via expressions of interest,” Mr Macree said of the Sorrell Street sale.
JLL was approached by the building’s strata committee after an unsolicited offer from a another developer prompted them to explore demand for a combined site.
“We recognised the potential of the property and worked closely with the owners to get them on board and ensure the value of their combined asset would be maximised,” said Mr McEvoy.
Supply shortage looming
Research from JLL shows that apartment construction in inner Sydney has plummeted in the past year.
At the end of July there were 10,200 apartments under construction, almost 40 per cent less than the year prior – a result of the city’s overall property market correction.
In Parramatta, which is just outside the area included in that report, uncertainty in the residential market was also likely to mean many apartment projects would be put on ice, said Mr Macree.
“While there is a fair amount of potential supply with ‘plans submitted’, they will likely be delayed or cancelled,” he said.
The median unit price in Sydney’s west fell 11.26 per cent in the year to June 2019, according to Domain Group data.
But continued population growth in the area, and the relocation of businesses and government departments, should mean demand for apartments in Parramatta would pick up in three to five years, Mr Macree said.
This is echoed by some market commentators who are predicting that the current downturn in apartment construction will likely lead to a shortage in supply within the next five years – further fueling a recovery in new stock prices.
BIS Oxford senior manager Angie Zigomanis said that not even an increase in the pace of apartment completions to an average 2991 a year to 2026 – well above the average of 2361 of the previous two decades – would be enough to match demand for new apartments in inner Sydney, particularly from downsizing Baby Boomers.
“We do need to build more to accommodate that demand,” Mr Zigomanis said.
Korda Mentha partner Paul Mirams told an S&P Global Ratings panel on July 31 that while apartment settlements in Sydney’s middle-ring suburbs were facing a tough 18 months ahead, beyond that a lack of new stock would likely contribute to a rapid recovery.
“I think the development market has stopped…There is nothing new coming out of the ground. I think we’re putting in place the building blocks for the next mini boom, because in three or four years time we’re going to have no stock,” he said.
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