Well, the statistics are starting to come in and it would appear that we are in for a period of suburban rental growth in Auckland. Conversely, I expect to see a rental softening in the CBD as demand for AirB&B and student accommodation lags.
While the dataset for CBD apartments is far from exhaustive, it would appear on the initial data that there has been some market softening. I expect this to continue as the market responds to global economic headwinds.
Across the Du Val portfolio, we have seen suburban rental growth. The southern corridor, in particular, has been a successful investment destination for our clients which is picked up in the wider suburban statistics, with rental growth trending after a static period.
Increased rental activity has also been matched by investor demand for affordable suburban apartments and terraces as they return to the market seeking yield and more importantly stability of cashflow.
A hardening suburban rental market and the easing of LVR restrictions in conjunction with the availability of cheap debt provides a substantial opportunity for investors over the coming period.
We will have signed approximately 60 new sale & purchase agreements by the 18th of May for new or recently completed property and we anticipate that we will have contracted $45m of sales by the end of the month. This level of activity hasn’t been seen in the Auckland market since 2016 and there are early indications that there is a flight to quality, affordable real assets.
What isn’t widely reported is that the government is the clearinghouse for transitional, emergency and social housing. This data isn’t closely monitored by property commentators, however, the research from CBRE is compelling and the government will become increasingly active through the rest of the year. By way of example, my family has signed government leases for new builds totaling 700 units in the past few months, substantially reducing the stock for free market rental in coming years.
Government housing provides a sales “floor” for one and two-bedroom property through the KiwiBuild program and also provides a floor for rental through CHP’s and Kainga Ora. As detailed above, the government's activity also substantially reduces the stock of free-market tenancy and this creates rental pressure at the affordable end of the market. We anticipate that rents will increase across our portfolio and through the wider suburban market in areas where the government is active through 2020 and 2021.
Current occupancy across the Du Val direct and managed portfolio is 100% with vacancy only coming from “churn”. To limit churn, we attempt to back-to-back tenancies where we lose one or two days for cleaning and minor repairs and maintenance between outgoing and incoming tenants. Advertising accommodation to let has had to be curtailed as we have 10-20 applications a day for a single tenancy as long as an advert is running and rental demand for quality new housing is at the highest level we have seen in the past five years.
Rental demand by market segmentation isn’t widely reported and we often have to rely on anecdotal evidence and data from our property management division. Inquiry for a one-bedroom property is marginally higher than inquiry for two-bedroom property and there is a substantial fall-off for inquiry for three and four-bedroom accommodation. There is evidence to suggest that this is due in part to price sensitivity and this is supported by the Nov-19 Colliers BTR research report where tenants surveyed indicated that price was the primary driver for accommodation ahead of amenity and tenure.
Demand for semi-furnished accommodation at the affordable end of the market exceeds demand for unfurnished accommodation and attracts up to a 9.5% rental premium. This is in line with international trends and the London BTR and BtL market achieves a similar premium where the property is purpose-built for renters.
What is clear is that there continues to be an undersupply of housing outside of the CBD and at the affordable end of the market. We will face significant challenges as a society if we are unable to deliver housing at scale to provide accommodation at every rung of the property ladder.