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CBD apartment oversupply not a major concern

It is common to hear members of the Darwin community lamenting that there are already too many apartments in the Central Business District.  But while it is certainly true that we currently have an oversupply, and price corrections have occurred due to a softening of demand, this is unlikely to be the case in the longer term.  Why is this so?

 

For a start, Darwin’s economic growth projections are already strong, which means there will continue to be strong employment – conditions which can be expected to drive population growth and increased demand for all types of housing.

 

During July the Urban Development Institute of Australia (NT) delivered the “Prosperity Points North” Conference in Darwin, with a focus on identifying the potential for economic growth in key industries including defence, tourism, international education, agribusiness, mining, oil and gas.  The message from expert speakers in each of these areas was very positive.

 

More recently, speakers at the South East Asia Offshore and Onshore Conference (SEAAOC), which included the “Building the Territory” and “Mining the Territory” Conferences, delivered more of the same messages.

 

It is clear that economic conditions in our region of the world can be expected to deliver strong growth and therefore more employment and a higher population in the Northern Territory.

 

The second consideration is our historic rate of population growth.  Interestingly, even without the Ichthys project and the current focus on developing the north, Darwin has been experiencing steady population growth since Cyclone Tracy.  Our population has increased from around 44,000 in 1976, to be currently around 130,000. 

 

In 2014 the Darwin CBD was home to 15,000 Territorians (more than 11 percent of the population of Greater Darwin).  Projecting that CBD population forward even using recent population growth rates (much lower than the average) would still add around 150 people (possibly enough to occupy 75 more apartments) in just one year.  But it is reasonable to expect a return to average growth levels again in the future, which could quadruple the number of additional apartments needed each year.

 

The third factor we need to consider is the trend towards CBD living which is occurring in capital cities throughout Australia, including Darwin.  Central Business Districts are increasingly attractive to people for a variety of reasons.  One of these is a progressively reducing focus on car ownership, which is more easily achieved through living within walking or cycling distance of work and entertainment. 

 

If you were to count the coffee shops, restaurants, hotels and other entertainment amenities within and close to the Darwin CBD, it would be hard to avoid the conclusion that this is where the action is!  Not that everyone wants to live right amongst this scene, but increasing numbers of people do.  And if you are retired, you can simply lock up your apartment, head for the airport and stay away as long as you like.  You will not need to worry about your pool, garden, irrigation system, falling palm fronds or burglars!

 

The fourth factor relevant to apartment demand is planning for Darwin’s CBD into the future.  Since 2013 the City of Darwin and the NT Government, with assistance from the Commonwealth Government, have been working on a blueprint to guide the development of Darwin’s Central Business District.

 

The Darwin CBD Master Plan is soon to be incorporated into the NT Planning Scheme and will facilitate significant new opportunities for development, such as along new road access points into the CBD.  New developments will provide an appropriate balance of retail, commercial office space and apartment living and will be delivered as market conditions allow, over a long period of time.  But we can expect many more than 15,000 people to be living in the CBD within the next decade and beyond.

 

It is true that the development industry’s rate of delivery of new apartments in the CBD has recently moved up beyond the long-term average demand.  But is equally true that every indicator is telling us demand for CBD apartments will continue to grow.  It follows that it will not take very long for current stock to be filled.

 

Building more apartments than is necessary is a risky business model.  But having insufficient stock to meet demand also creates problems, the most serious being the increased prices which inevitably follow on from demand outstripping supply.  Then it takes several years before we can build enough stock to catch up!

 

Getting the balance right, and ensuring new stock is tailored to evolving apartment market demands with respect to size, design and the amenities offered, are key challenges for Darwin’s development industry.