The build-to-rent (BTR) market in Australia has been experiencing significant growth, driven mostly by Melbourne’s dominance in the sector. However, recent trends show Sydney emerging as a strong contender, with increasing investment and development activity in the city, potentially setting it up as the next leader in the BTR landscape. This article delves into the dynamics of the BTR market in Australia, scrutinizing the rivalry between Sydney and Melbourne, considering the impact of recent government legislation, and examining the challenges and opportunities the sector faces.
Sydney’s Emergence in the BTR Market
Sydney is swiftly gaining traction in the BTR market, attracting developers and investors who seek alternatives to the established Melbourne market. Recent development activities have shown a substantial surge in interest and investment in Sydney’s BTR sector. According to the latest Knight Frank Build to Rent Update, Sydney’s BTR pipeline is on the rise, with New South Wales surpassing Queensland concerning completed and under-construction BTR units. With a total of 3,584 units completed or under construction and 11,505 in the pipeline, Sydney is poised to become a significant player in the BTR market.
John Paul Stichbury, Knight Frank’s Partner in Living Sectors, Valuation, and Advisory, anticipates Sydney stepping into the limelight by 2025. Investors who have traditionally focused on Melbourne are now looking to establish a presence across the Eastern Seaboard, with Sydney being a prime target for new opportunities. This shift signifies a strategic move for investors seeking to diversify their portfolios and tap into Sydney’s burgeoning market. Developers are increasingly recognizing Sydney’s potential as the city offers a vibrant market with strong demand for rental properties and an attractive investment climate.
Melbourne’s Established Dominance
Despite Sydney’s growing prominence, Melbourne remains the focal point of the BTR landscape in Australia. Boasting the most advanced BTR pipeline, Melbourne saw a record number of 3,227 BTR units opening within a 12-month period. Despite this substantial growth, Melbourne’s BTR supply still accounts for just 0.8 percent of the rental market by the number of households. This statistic underscores the potential for further expansion in Melbourne’s BTR sector, given the city’s consistent demand for rental housing.
Developers like Goldfields are making strategic moves into Melbourne’s BTR market. Their first project, The Raleigh, a $350 million apartment complex in Windsor, is slated for completion in Q2 2026. Marco Gattino, Goldfields’ Managing Director, cites historically low vacancy rates and a forecasted housing shortage as key reasons for their entry into the BTR sector. Melbourne’s established dominance in the BTR market is driven by strong fundamentals and investment potential. However, the wider macroeconomic environment and uncertainty around government policy have constrained capital availability and slowed deal flow, presenting challenges for continued growth and expansion.
Brisbane’s Developmental Hurdles
Brisbane faces notable challenges in establishing itself in the BTR market, lagging behind Melbourne and Sydney in new-build supply despite a chronic rental accommodation shortage. Larger platforms are expected to diversify into tier-two locations in the future, but for now, investors remain primarily concentrated on the “Big 3” cities: Melbourne, Sydney, and Brisbane. The developmental challenges in Brisbane are exacerbated by persistent build cost inflation, which pressures feasibilities and impacts the pace of new construction starts. The wider macroeconomic environment also poses issues, contributing to the slower growth in Brisbane’s BTR sector.
Activity in Western Australia and South Australia has been minimal, though new projects have recently entered the planning phase, signaling a gradual expansion beyond the eastern states. Nationally, about 8,900 dedicated BTR apartments are currently under construction, with an additional 20,000 units approved for development over the next five years. This broader national trend reflects the growing interest and investment in the BTR market despite the regional disparities in development progress.
Government Legislation and Its Impact
Recent government legislation aims to further stimulate BTR development by introducing new tax concessions, approved by the Federal Parliament at the end of 2024. These reforms could unlock 80,000 new apartments within the next decade, with concessions tied to five-year minimum leases, provision of 10 percent affordable housing, and the elimination of no-cause evictions. Wendy Hayhurst, CEO of the Community Housing Industry Association (CHIA), welcomes the new legislation, emphasizing that it offers greater tenancy stability with minimum leases extended from three to five years.
The introduction of incentive payments and revised tax treatment is expected to catalyze more investment into high-quality rental housing supply, providing much-needed stability for tenants who cannot achieve private ownership. The importance of the sector in tackling the rental crisis is further highlighted by rapid population growth putting a strain on vital services and housing affordability. The new legislation is anticipated to drive significant investment and development in the BTR market, helping to alleviate the rental crisis and improve housing affordability nationwide.
Challenges and Opportunities in the BTR Market
The build-to-rent (BTR) market in Australia has seen remarkable growth, with Melbourne historically leading the charge. However, recent trends indicate that Sydney is emerging as a formidable competitor. Increased investment and a surge in development activities suggest that Sydney could soon rival, or even surpass, Melbourne in the BTR sector. This article explores the dynamics of the Australian BTR market and highlights the competition between Sydney and Melbourne. In addition, it considers the impact of recent government legislation on the sector and delves into the challenges and opportunities that lie ahead. Sydney’s rise in the BTR market may be attributed to various factors, including strategic policies and significant capital influx aimed at bolstering its development projects. Both cities offer unique prospects for investors, yet face challenges such as regulatory hurdles and market saturation. Understanding these dynamics is crucial for stakeholders looking to navigate the evolving BTR landscape in Australia.
