Developers are becoming increasingly selective in the NSW development market, with capital gravitating towards sites offering greater planning certainty, defensible end-demand and a realistic path to feasibility.
Elevated construction and financing costs, planning timeframes and greater price sensitivity among end purchasers are reshaping the way development opportunities are being assessed across NSW.
While the state continues to face a significant underlying requirement for new housing, Cushman & Wakefield says the challenge is increasingly not one of demand, but whether land can be converted into financially viable projects under current market conditions.
The result has been a more disciplined acquisition environment, with experienced developers increasingly distinguishing between sites that require improving market conditions to become feasible and those that can support a viable project based on today’s assumptions.
Cushman & Wakefield National Director and Co-Head of Investment Sales NSW Miron Solomons said developers were placing greater emphasis on fundamentals at the acquisition stage.
“The market hasn’t stopped, but it has become considerably more selective. Developers are looking closely at whether a project can be supported by today’s end values, construction costs and cost of capital, rather than relying on future market growth to make the numbers work.
“Planning certainty is playing an increasingly important role. Existing approvals, established planning pathways and realistic development outcomes can materially reduce holding costs and execution risk, which ultimately influences what a developer is prepared to pay for land.
“At the same time, developers are drilling much further into end-demand. It is no longer enough to say an area needs more housing. They want to understand who will actually buy, rent or occupy the finished product and what will differentiate that project from competing supply.”
This shift is also directing attention towards locations and product types where future competing supply is constrained.
For developers, the combination of genuine underlying demand and limited competing stock can provide greater confidence around absorption and pricing, particularly when projects are being assessed against more conservative feasibility assumptions.
A realistic land basis has consequently become a critical part of the equation.
Rather than underwriting acquisitions on the expectation that residential values will increase or financing conditions will improve, sophisticated groups are increasingly testing sites against current conditions and determining the land value that allows the project to remain viable.
Cushman & Wakefield Director, Investment Sales NSW Matt Pontey said this was creating a more nuanced buyer market, where different developers could attribute materially different values to the same opportunity.
“Execution capability has become a significant differentiator. Two developers can assess exactly the same site and arrive at very different conclusions depending on their experience with planning, design, construction, funding and sales.
“We are still seeing experienced groups pursue opportunities that may not attract broad market interest, but they are doing so where they can clearly understand and price the risk.
“The strongest interest is generally coming through for sites where there is a combination of planning certainty, identifiable end-demand, limited competing supply and a land basis that reflects current development economics.”
The changing market also has implications for landowners and lenders controlling development sites.
According to Cushman & Wakefield, determining value increasingly requires an understanding not simply of what a site could be worth under stronger market conditions, but which developers have the capability and appetite to deliver it today.
Mr Solomons said access to active buyer intelligence was becoming particularly important as the pool of potential purchasers became more specialised.
“The question for landowners is increasingly: which developers can make this particular site work today, and at what land value?
“That requires an understanding of where capital is active, which product types developers are pursuing, how they are assessing risk and where they are genuinely prepared to transact.
“In this environment, finding a buyer is only part of the equation. Identifying the buyer whose development model best aligns with the fundamentals of the site can make a significant difference to the outcome” he said.
Mr Pontey said
“With NSW continuing to require substantial new housing delivery, development capital remains active, but increasingly selective about where it is deployed.
Sites offering genuine planning fundamentals, defensible end-demand, constrained competing supply and a demonstrable path to feasibility are therefore emerging as the opportunities best aligned with the current acquisition environment”.
