Located on the southeastern corner of Bell Street and Blanch Street, the subject site is in the northern suburb of Preston on the east side of the Bell Street level crossing. The property is situated approximately 8 kilometers away from Melbourne's central business district.
A mix of retail, commercial use and new apartment developments are in the immediate area surrounding Bell Street and are zoned “Priority Development Zone”. A vacant lot currently used for car parking is on the adjoining southern boundary of the property. The Eastern boundary abuts pedestrian walkways that lead to Bell Station. St George Bank is located on the opposite corner to the subject site being separated by Blanch Street on the western boundary.
The suburb of Preston is generally a mix of commercial, residential and industrial type property. Industrial development in the area tends to be light industrial, the majority of which is located approximately 2 kilometers east of the subject site, which contains a variety of older style and contemporary office, warehouse and showroom development.
Progressive redevelopment of secondary commercial buildings into medium rise apartment buildings has resulted in gentrification within the area, adding to the development within the area. In addition to contemporary redevelopment new development sites, such as the High Street apartments are under construction.
Bell Station is located next to the subject property along Bell Street in addition to public transport links such as tram services along Plenty Road and High Street. In the south, a bus service operated along High Street, Bell Street and Plenty Road.
The land area is approximately 1,162 square meters with a building approximately 200 square meters sitting on the land. The property is rectangular in shape and consists of an unoccupied single storey commercial building. The property has rear access to Blanch Street, which connects to Bell Street through side and rear access. The site has 28 meters of frontage to Blanch Street and 16 meters to Bell Street. The subject property is level in topography and is at road grade.
Additional Property Information
The property currently has a permit for a commercial / retail building of 5,264 square meters and is for sale by the landlord. The current development scheme in the area allows for 71 apartments and one ground floor retail space.
- Under the current zoning, a high level of density would not be achievable
- Applications to council would have to be submitted for zoning change
- Planning and building permit would be required for the construction of multi storey dwellings
- Residential development are required to pay infrastructure contributions to council
Changes to zoning will become apparent to accommodate a greater density in areas around the train station and train lines that the sky train will bring. By allowing for greater housing stock the result will be more affordable housing for people looking to move to the area. The assumption is that zoning will be changed accordingly to either Urban Growth Zone (UGZ) or Commercial 1 Zone (C1Z) that will enable increased development.
Concept – Mixed Use Development
The proposed development will consist of a mix of one and two bedroom apartments with the two bedroom apartments having a second bathroom. The apartments will be of similar design featuring open plan kitchen, living and dining areas. The apartments will have external windows providing natural light. The lobby area will be accessible from Bell Street, where the main pedestrian entrance will be located. A lift from the basement car park and lobby will provide access to residential levels and the rooftop terrace.
Each apartment will be fitted with an external area (balcony) that will vary in size depending on orientation. Some balconies, namely on the third floor, will act as privacy for those on lower levels as a 9 meter fence is impractical. The apartments on the third floor that would effectively be the same height as the light rail would have the laundry closest to the rail with the living quarter at the rear to give privacy and act as noise cancelling. Each apartment is allocated a single car park with the possibility of purchasing an additional space subject to availability, furthermore, each apartment benefits from a storage cage situated in the basement. Communal facilities will be offered such as a roof terrace showcasing views of Melbourne's CBD.
Due to the smaller apartment size and the subject site being within close proximity to public transport, access to the Melbourne CBD and amenity along High Street the development will commence with young professionals and investors in mind. It is expected that further enquires will be submitted once constructed begins as it will give consumers greater confidence with respect to the completion date.
ABS data from December 2015 indicates that the Australian economy grew by 3.0% for the year and more recently 0.6% in the December quarter.
As of May 2015 the RBA lowered the rate to 2.0% and as a result the official cash rate has been stable
The Consumer Price Index rose 1.7% in the December quarter 2015
Employment increased 2.1% over the year to February 2016, resulting in the unemployment rate decreasing by 5.8%.
In February 2016 estimated dwellings approved decreased by 0.5% and 10.5% in 2015.
According to ABS data Australia has a population of 24,038,200 as of 07/04/2016. Population has grown at a rate of 1.3% over the year to September 2015. Immigration is a large contributor to the rapid increase in population.
Residential Market Overview
- As a result of low interest rates, steady population growth and foreign investment the Melbourne residential market is strong and advanced in a cyclical upturn.
- The apartment market is heading towards an oversupply in Melbourne over the next two years. According to AMP Capital Chief economist Dr Shane Oliver, the Australian property market will “start going negative” in 2017 if interest rates rise. The apartment market is most vulnerable to a cyclical downturn.
- Foreign investment has seen continual growth in Australian real estate and the residential property market in particular.
- As a result of continued population growth and interest from foreign investment the Melbourne residential market is strong. However, with an oversupply of apartments in 2016/2017 the market is susceptible to a downturn and reduction in price.
- Overseas interest in Australia remains strong and likely to remain a desirable investment destination. Although recent government announcements from the Australian Prudential Regulation Authority (APRA) regarding scrutinizing lenders in the current market and monitoring risk profile, investor lending and serviceability assessments there will be a delay for information to reach investors. The effect will be a demand shift from previously owned dwellings to new residential dwellings.
- An increase in Victorian dwelling approvals leading into 2016 has been a result of low interest rates in conjunction with consistent population growth.
- Historical highs are being met in the housing market as non-house approvals, such as apartments, townhouses and semi-detached terrace houses are being accepted. This shows there is interest in the market for apartment style living and should help in attracting demand for the subject property.
- Vacancy rates across Melbourne's residential market have been stable with the exception Melbourne's middle suburbs.
- As stated, Melbourne's metropolitan market is oversupplied at 3.1%, the market equilibrium rate is indicated at 3.0%.
December 2015 January 2016
Inner (0-10km) 2.8% 2.8%
Middle (10-20km) 4.0% 4.8%
Outer (20+km) 2.1% 2.2%
Metro Melbourne 3.1% 3.1%
- Vacancy rates within the CBD are at 2.6%
- In A Grade A Premium locations rental yields are continuing to increase with rental growth
- As a result of low interest rates and low oil prices retail sales are expected to grow.
Preston Residential Profile
- Preston has an average age of 36 years old
- 92.5% of private dwellings are currently occupied, leaving 7.5% unoccupied.
- Houses currently make up the majority of the market with 67%, followed by apartments at 18.5%, whish is of interest due to the development proposal, and semi-detached townhouses make up the remaining 13.9%.
- The average house price is set at $800,000, attracting average weekly repayments of $280.
- The median household income is $1,047 weekly.
Preston Apartment Profile
- Average price of apartments is $405,000 in the lower quartile and $580,000 in the upper quartile.
The proposed development involves the demolition of the current building on site and the construction of a mixed residential and retail six-storey building. The building is expected to reach 21 metres in height with 800 square meters of ground floor. The complex will host approximately 53 apartments, three ground floor retail stores and a restaurant.
Details regarding each specific apartment can be seen below.
It is evident one bedroom / bathroom apartments make up the majority of the development, compared to that of the two bedroom style dwellings that comprise 37%, while three bedroom apartments make up the remaining 6%. Due to the nature of the development style the apartments should be marketed towards young professionals or investors.
The table below illustrates the retail sector of the development. Each retail store will be allowed 100 square meters of gross lettable area, while the restaurant will require 500 square meters. Ideally the spaces will be sold off plan or as close to completed construction as possible.
Each level will have a three meter floor to ceiling clearance. The distance of three meters will allow for enough room for apartment living and room enough for the gap between each floor, foundations and roof.
With a projected timeframe of 18 months the first stages of the development will occur in April 2016, which involves the acquisition of the project site. Following settlement a planning consultant will be contacted to prepare a development application. Construction will begin once an application has been approved; there is a one year time allowance. Pre sales will begin to try to sell apartments and retail sites ‘off plan' before construction is completed. Construction of the complex is estimated to take 10 months; during this time further marketing will take place. A 16-month time period has been allowed for sales to be completed (September 2018) once construction is complete in April 2017.
Option one: Railway at grade
The proposal will remain at grade level.
Option two: Railway above ground (sky rail)
This option requires the sky rail to be built nine metres above ground level. Privacy for residents on levels one, two and three will be a great concern. As a result, architects will be used to offer privacy by way of balconies. Some balconies, namely on the third floor, will act as privacy for those on lower levels as a 9 meter fence is impractical. The apartments on the third floor that would effectively be the same height as the light rail would have the laundry closest to the rail with the living quarter at the rear to give privacy and act as noise cancelling. Additional noise cancelling will be put in place in appropriate locations.
Option three: Underground railway
This option is the most complex of the three options that will require increased cost, time and planning from the government. As a result of the excavations involved, the development timeline will be greatly enlarged, as demolition and construction will occur at a later date. Depending on the width of the underground corridor, adjustments to the underground car park may have to be altered. It is important to note that land over the tunnel will not be able to support anything of too much weight, for example, only light car parking and amenity such as garden beds would be able to be used. Access along the eastern boundary will be provided to give entry to the public open space available. The additional open space on the ground floor will allow lower floors to increase area by way of deck or balcony outwards towards public space.
- Construction costs have been estimated using a Rider Levet Bucknall calculator for residential buildings up to 10 storeys high comprising a lift
- The estimated construction costs come in at a low of $2,200 and a high of $2,900 as of 19/09/2016.
- Sales evidence was obtained through publicly available sources and assumed to be correct to the most relevant date possible
- Land was purchased for $4,100,000 and an assumption of $3,500 per square meter has been assumed.
The costs below have been gathered using the Rider Levet Bucknell model of construction specifically for Melbourne as of 19/09/16
- Retail space has been priced with a low / medium finish in mind
- Similar to retail space, both one and two bedroom apartments reflect a low finish, adopting a rate of $2225 per square meter
- As the two and three bedroom dwellings are located on a higher level the rate has been to reflect a medium / high finish
- The proposal currently offers one car space per unit.
Development Style Cost
Retail Space $1,060 per unit
Restaurant $1,060 per unit
One Bedroom Apartment $129,050 per unit
Two Bedroom Apartment $162,425 per unit
Car Park $98,000 per space
The sale prices below are estimation as a result of recent sales data of relevant property within the surrounding area of Preston. A rate of $6,000 per square meter has been applied for retail space as a result of the comparable properties; 52 High Street and 356 High Street with $5,295m2 and $8,425m2 respectively. Given the 100 square meter areas at a rate of $6,000 a value of $600,000 per unit is resulted.
Existing apartment sales within the area show a price range between $250,000 to $400,000 for one bedroom apartment with an area of 58m2. The proposed development features a medium to high finish and is therefore on the top end of the price range as well as aiding in gentrifying the area. The bigger apartment with an area of 73 square meters is most comparable to 5-9 Blanch Street, creating a price range of $430,000 to $500,000. As a result, a value of $450,000 has been adopted to the two bedroom apartments.
Development Site Sales
- The subject site faces a main road and is subject to a high volume of traffic running east to west along Bell Street. Currently, the site is zoned “Public Use Zone”, discussions from a planning consultant suggest it would be more beneficially zoned “Mixed Use” or “Commercial 1”. The result would be greater density within the area and a mix of residential, retail and transport infrastructure.
- The proposed site already has good access to road linkages and proximity to public transport
- Upper level apartments will have access to city views
- Levels 1-3 of the complex will suffer privacy issues
- Noise cancellation will be a constant issue as the development borders the Morang train line
- Existing residents may be unhappy with further development of public transport within the area
- Apartments are sold ‘off plan' prior to completion creating financial security
- Planning permits are approved for the development by council
- Current oversupply of apartments threaten selling prices
- Laws regarding overseas investment may change
- Prices for remaining apartments not yet achieved
- Competition from other developers
The development features a variation of low / medium / high finishes throughout. Medium / High finishes have been applied to the upper levels of the building for the larger scale apartments, while lower levels of finishes have been utilized for the lower level, smaller apartments and retail units. The proposed development idea is the preferred option as it best caters for the desired demographic of young professionals and investors.
The underground development poses too many threats in terms of increased construction times as a result of excavation and extra underground work such as repositioning the underground car park. Additionally, the extra cost will decrease profit margins and the land on the surface has very limited use.
In sum, the proposed development should expect a profit margin of 25.8%, which allows for contingencies and minimizes financial risk.
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