This week, we take a closer look at balconies and other types of outdoor area in apartments. While no doubt desirable, many developers are uncertain how much value outdoor space will create for them. This was reflected in our Supply report, which showed that outdoor space for both one and two bedroom apartments being planned in Melbourne was barely above the minimum suggested in the Victorian Government’s recent apartment design standards draft.
Outdoor space is more valuable for small apartments, while price per square metre of indoor space increases as apartments get bigger.
One bedroom apartments with a balcony are expected to sell for 11.69% more than those without, while two bedroom apartments are expected to sell for 8.40% more on average.
While internal apartment space in inner Melbourne is worth about $8,400 per square metre, outdoor space (i.e. a balcony) is valued at about $1,500/m2. In other words, indoor space is valued 5.6 times higher than outdoor space. This doesn’t necessarily mean that a developer is better off building more roomy apartments and foregoing outdoor space altogether.
Looking at over 1,200 apartments sold in inner Melbourne since January 2016, Table 1 summarises how expected price per square metre of both outdoor and indoor space changes as the average size of apartments in the sample increases. We can see that outdoor space is valued the most for 1 bedroom apartments ($1,529/m2 on average) and decreases as we add bigger apartments to the regression. The opposite is true for indoor space: as mean apartment size increases, price per square metre of indoor space increases on average. While the data doesn’t explain why this is the case, some possible reasons include:
- Small apartments are less likely to have any outdoor area, making it a more desirable feature.
- A balcony can extend the living room, making smaller apartments appear less cramped.
Our final analysis looked at how much value the average balcony is expected to add to an apartment.
Table 2 shows the average prices and balcony sizes (assuming the apartment has a balcony) in the sample. The regression shows that a balcony is expected to increase the price of a one bedroom apartment by nearly 12% on average, and over 8% for two bedroom apartments. Note that a balcony had no significant impact on sale price for apartments with three or more bedrooms.