Go big and go home: why Australian apartments are getting larger

A significant shift is under way in Australia's biggest new apartment markets where developers are now building larger, better appointed and more expensive homes for owner-occupiers rather than the cheaper investor stock they were pumping out a decade ago.

Driving what industry experts see as a long-term trend is that developers, hit by sharply higher construction costs, are getting better margins on larger apartments due to increased consumer appetite for bigger, higher quality stock, while there are also fewer investors.

Rising building costs

Richard Temlett, Head of Research at Charter Keck Cramer, says build costs are making many projects financially unviable because there's a price ceiling on one-bedroom, studio and two-bedroom one-bathroom apartments.

"In contrast, the two-bedroom two-bathroom, the three-bedroom and the four-bedroom apartments have much greater price elasticity because the buyers - the downsizers or theright-sizers - have more ability to pay for a larger apartment and a larger price point," says MrTemlett.

He says Sydney is the most mature apartment market with the greatest number of unit-dwelling families and three-bedroom apartments, followed by Melbourne and Brisbane.

Long-term living

"All of them are following a similar trajectory where there's more and more people deciding to live in an apartment," says Mr Temlett.

"In those cities, if you've got bigger apartments in smaller schemes with bigger floorplates, nice views or are close to amenity, there are a number of buyers groups prepared to live in them."

Due to the demand for larger apartments, Mr Temlett says many developments no longer include one-bedders.

"The minimum is two-bedroom, two-bathroom, lots of three bedrooms, lots of four bedrooms, much larger floorplate, much larger balconies."

Rick Graf, Development Director at major Sydney developer Billbergia, says 10 years ago in greenfield or urban renewal precincts investor stock was "all the go" and people were strong on one-bedroom apartments because they provided an affordable entry point.

"For example, in Rhodes (Sydney) where we have done a lot at Wentworth Point, there were a lot of singles and mingles in the mix, but now as those suburbs have matured people are looking for larger and family-oriented stuff," says Mr Graf.

"We've had people who have graduated from ones to twos and now are looking for threes rather than moving out of the area. Value wise those areas have been increasing significantly as well."

He said a decade ago it was difficult to make three-bedroom apartments work financially but that is no longer the case.

Looking for space

Buyers are willing to pay a premium for the extra space and the weighted average size of the apartments developed by Billbergia has increased from around 80sqm to 100sqm in line with increased demand.

"We've switched the emphasis in the mix to larger apartments," says Mr Graf.

Paul Riga, a Director at Urbis, says the trend to larger apartments can be seen cross most major east coast markets except for the Gold Coast, where they have always been more expansive.

Using a two-bedroom apartment as a benchmark, Riga says Brisbane and Melbourne new-build apartments have had the most significant growth over the past decade.

Growing apartments

"Melbourne's market has moved from the early 70 square metres in 2016 to around 80 square metres," says Mr Riga.

In Sydney the average size of a two-bedroom apartment increased from 80sqm to 85sqm, while in Brisbane floor space has grown 10 per cent to 88sqm.

"I think that talks to the value proposition that existed as a legacy where Brisbane was offering bigger product at a lower per square metre rate," says Mr Riga.

"But it's also that focus on the owner occupiers that's been pushing demand for product in the Brisbane market, and what's feasible for developers."

Given construction costs, supply issues and the growing number of ageing Baby Boomers looking to downsize and unlock equity, Mr Riga says developers will continue building larger apartments.

"If there is product out there that has a point of difference from the quality perspective, from a location and amenity perspective it greater price growth potential because that's the sort of product that will continue to be in demand."