Australia's leading provider of industry research, analysis and forecasting services, BIS Shrapnel allays concerns about the prospect of an oversupply of new apartments in inner Brisbane by saying that the recovery in tenant demand will fill the growing number of apartments entering the development pipeline.  

According to BIS Shrapnel’s Inner Brisbane Apartments 2011 to 2018 report, rising tenant demand will be underpinned by growing employment in Brisbane CBD and CBD fringe areas as the Queensland economy begins to strengthen from its recent troughs.  

Senior project manager and report author, Mr Angie Zigomanis says that recent high vacancy rates in inner Brisbane were caused by a collapse in rental demand over 2008 to 2010 following the Global Financial Crisis, rather than a result of any excess building.  

The resultant unemployment led to existing tenants vacating their apartments while those who were still employed took advantage of the First Home Owner’s Grant Boost Scheme to move into owner occupation.  

BIS Shrapnel says that the weak environment in Brisbane has created a level of latent demand from potential tenants who would have otherwise been in the rental market and have delayed their move until they are more positive about their employment prospects, and consequently their ability to meet their rental payments.  

Tenant demand in the inner Brisbane apartment market is driven by two major groups: young (under 40 years) white collar employees working in the Brisbane CBD or CBD fringe areas, and students who are predominantly from overseas.  

Both groups have experienced limited growth since the GFC, with white collar employment impacted by a weak Queensland economy, and more recently growth in overseas students being stymied by the high Australian dollar.  

On the supply side, new apartment construction has also been low due to limited off-the-plan sales and constrained financial conditions that have prevented developers obtaining finance to proceed. But an increase in new apartment projects is expected with the financial situation having eased and developers making alternative finance arrangements such as joint ventures or partnerships, though many of these projects are not expected to translate to new supply until 2013/14.  

Till then, the tightening vacancy rates will drive acceleration in rental growth for apartments, which in turn will result in improved yields and a strengthening in off-the-plan purchaser demand, says Zigomanis.  

The increase in off-the-plan sales will drive further increases in new apartment supply, although it will be beyond 2013/14 before new supply will have an impact on vacancy rates.  Nevertheless, due to the double-digit percentage rises in both rents and prices leading into the GFC, the outlook for rental and price growth over the next few years will be more moderate, with both rising in line with income growth.