One of Melbourne’s first completed build-to-rent projects Union Quarter has smashed leasing predictions, demonstrating how the segment can fulfill surging demand for one-bedroom apartments.

Located in Spotswood, Union Quarter by developer Suleman Group features 332 apartments across two buildings and commenced leasing in late 2023. It is now over 80 per cent leased, with all of the building’s 34 one-bedroom apartments leased in under three months and three-bedrooms moving almost as quickly.

BTR Specialist Nicole Hiddlestone, of Union Quarter’s leasing team Infolio Property Advisors, said BTR had an opportunity to fulfil demand for one-bedroom apartments that isn’t being met in the private leasing market.

“Union Quarter has defied leasing expectations and part of this is due to the incredibly fast uptake of one-bedroom apartments, which have outperformed all other product types,” she said.

“This highlights how BTR can fulfil an important gap in the private rental market – beyond the service and longevity of leases that asset owners promote – providing product that isn’t available due to the persistent challenges in the build-to-sell market.”

New one-bedroom apartments have increasingly fallen in number in Melbourne due to the fewer schemes coming to market and price constraints.

These constraints make it difficult for developers to offset higher project costs on one-bedroom purchasers, as the prices of these apartments cannot be increased to the same degree as other apartments due to the more limited borrowing capacity of purchasers and end rental value.

Most apartments in Melbourne need to achieve $14,000 per square metre rates, which places a whopping $750,000 price tag on a 55 square metre one-bedroom apartment.

“The rise of lone person households and rising cost of living means that people want one-bedroom apartments. Even if they are working from home, we’ve found that they will put a desk in the lounge or bedroom rather than paying for a second bedroom,” said Hiddlestone.

“This presents an opportunity for the BTR sector, where it can make these apartments stack up financially. Not to mention that BTR’s more social aspects – resident spaces, events and community building – speak to this audience.”

Hiddlestone said more developers needed to invest in bespoke financial models for BTR pricing as the traditional square metre rate approach didn’t work for the segment.

“Tenants pay more for the right floor plan. A slightly better positioned window that provides a better viewline can command more than the apartment next door that is the same size,” Hiddleston explained.

“There are nuances in renting buildings that can be leveraged to drive better returns. But when you apply a square metre rate model, it can fall short. In some cases, we’ve seen developers miss out on an average $150 per apartment across a building.

“There is no set formula for success. At the early stages of a project, developers should be engaging BTR leasing specialists to review floor plans and forecast rental rates, providing more certainty to the financial model. It’s where margins can be made.”

Infolio Property Advisors is one of Australia’s emerging BTR leasing specialists, leasing 180 apartments across key projects over the past 11 months. 

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