Urban renewal an investment winner
Rundown areas close to the city offer better returns when compared to areas further out, Sue Williams reports
DESOLATE areas up to 15 minutes’ drive from city centres, scarred by past industrial use and earmarked for development as urban renewal projects, often offer the best returns on high density residential investment, a new study has found.
Early bird investors across Australia have enjoyed annual increases up to 27 per cent on the price of apartments over the first two years of their outlay, usually far above the single- digit growth of neighbouring areas.
But there are some caveats — in particular, don’t pick an area where a rash of apartments will all be built at the same time.
The study from Resolution Research, commissioned by agency DTZ, looked at median prices of apartments in urban renewal areas in Brisbane, Sydney and Melbourne, and compared them to average returns in the cities generally.
It found annual returns above 27 per cent in the first two years of the Docklands development in Melbourne, 26 per cent in Newstead in Brisbane and 23 per cent in Sydney’s Pyrmont.
The findings have provided a welcome boost to both developers and local councils proactively pursuing urban renewal policies.
‘‘ To be honest, those high rates of growth were something I was totally surprised by,’’ says Diana Howes, managing director of Resolution Research. ‘‘ For those areas examined, that means something like 50 per cent growth in two years. I thought it would just be half that.’’
Developers, however, are heartened by the results, saying they justify their faith in such projects.
Queensland- based Property
Solu- tions, which specialises in urban renewal, says the financial returns are only half of the picture.
‘‘ When you’ve been in business for 30 or 40 years, you don’t do it any more just for the financial gains,’’ says founding director Kevin Miller.
‘‘ You also do it for the challenge of transforming a site that is heavily run down, has so many issues and whose potential has been totally overlooked, into a place where people want to live, work and visit.’’
One of the best showcases is James Street in Brisbane’s Fortitude Valley, which is today a lively precinct of shops, cafes, bars, an art- house cinema, food markets and units.
When Property Solutions took it on in 1995, it was an old industrial area dominated by the Coca- Cola bottling factory, with land priced at $ 250 a square metre. By the time they sold out in 2005, it was $ 2520/ sq m.
‘‘ With urban renewal projects, you get an opportunity to change uses, which is where you dig out the land’s value,’’ says Miller. ‘‘ But you need decent- sized sites that become a real catalyst for change.’’
Brisbane, the single largest local government authority in Australia, has become the pioneer in the field. Another good example is Newstead, a suburb today regarded as one of the city’s most livable.
After Brisbane City Council began its urban renewal initiative there in 1994, Newstead experienced strong apartment price growth of 26 per cent per annum for the next two years.
In comparison, apartments in the greater Brisbane area achieved average annual median price growth of only about 7 per cent over the past 15 years. Newstead’s population growth was much higher too — 14.2 per cent a year in the 10 years from 1996, compared to 3.5 per cent for inner Brisbane over the same period.
‘‘ It’s been a policy that’s been hugely successful for Brisbane,’’ says Alison Quinn, chair of the local urban renewal taskforce which started out identifying suburbs such as Newstead, Fortitude Valley, New Farm, Teneriffe and Bowen Hills for renewal initiatives. The area now set for new development has nearly doubled in size to more than 1000ha. The council estimates the private investment dollars injected into projects developed and delivered within the Brisbane urban renewal areas is $ 5 billion.’’
Elsewhere, urban renewal initiatives have delivered equally well for investors. In the first two years of the late 1990s urban renewal strategy for Melbourne’s Docklands area, prices of the area’s apartments grew by 27 per cent per annum. Over the past 10 years, median prices in Melbourne’s apartment market generally rose by 10 per cent a year.
In Sydney, the same phenomenon was recorded in the early days of Pyrmont’s redevelopment. Guided by the Sydney Harbour Foreshore Authority, the urban renewal program began in 1992 and saw median unit prices leap 23 per cent in the first two years. In the greater Sydney area, prices increased by 7 per cent per annum over the past 15 years.
‘‘ The key point here is that investors had to get in early for the best gains,’’ Howes says. ‘‘ These high rates of price growth were also in projects that didn’t seek to develop too many units.
‘‘ The ceiling limit would be about 200, no more, in one building or one development or one stage. Over that volume, you wouldn’t receive those gains. The volume of stock would start eroding the gains, as it did later in Docklands. Large developments like Jackson’s Landing in Pyrmont also didn’t enjoy those gains — they started prior to the urban renewal program. They were too early in the piece.’’
Independent property researcher Adviser Edge’s Louis Christopher agrees that urban renewal areas can offer good rates of return.
‘‘ They can potentially be a good investment opportunity — there’s no doubt about it, particularly in this current cycle where there’s been a shortfall in construction,’’ he says.
‘‘ But investors should still check sales in comparable areas to make sure they’re not over- paying.’’
Tim Lawless, research director for RP Data, says the strong returns don’t surprise him either. The projects studied were good ones, and the price rises came in the early years of groundbreaking projects.
‘‘ They were built when the market was strong too, before prices became flatter,’’ he says.
The programs have shifted in emphasis over the years, too, with mixed developments — including residential, commercial, retail and employment opportunities — now increasingly being favoured.
They’re also being placed more around existing transport corridors, becoming known as Transit Orientated Developments, or TODs, in order to more easily cope with sustained population growth.
In Brisbane, for example, new urban renewal areas along these lines are now being planned for Nundah, Albion, Milton, and Woolloongabba.
‘‘ While people always want to drive cars, we’re finding their car use does fall when they have the option of public transport,’’ says Paul Barratt, director of project marketing at real estate company DTZ.
‘‘ As a project marketer, we’re involved in projects that we call ‘ express suburbs’ which are far enough from the city centre — perhaps 15 minutes — so they’re not in a high- density environment, but they are close enough to enjoy all the benefits in a convenient location.’’
Nundah is the major mixed use project now being developed by Property Solutions on a 2.5ha site fronting Nundah Station.
Stage one, already delivered, is a major retail convenience centre. Plans for future stages include 300 residential apartments, with a major commercial office component, further retail, public plazas, a regional library and a refurbished heritage- listed pub.
Yet the higher than average returns that can come from these areas is probably the best educator possible.
Howes certainly believes this, as a result of her research.
‘‘ Urban renewal investments are the most failsafe that you can make,’’ she says. ‘‘ Just as long as you get in at the right time.’’