• Values for Inner-City Melbourne apartments have increased solidly over the year, reaching an all-time high despite the lack of international students and subdued investor demand,
• The vacancy rate for Inner-City precinct is projected to have peaked with the total vacancy rate falling in recent months;
• Of the 60 new developments currently under construction, 58% of the apartments are located in the CBD Core, followed by 23% in Southbank and 7% are located in Docklands.

Inner-City Melbourne Apartment Summary

Despite the elevated vacancy levels of the Inner-City Melbourne precinct, values for Inner-City Melbourne apartments have increased solidly over the year to reach an all-time high. Having traversed the worst of the pandemic, Urban Property expects that the declining apartment pipeline will shelter any significant falls of Inner-City Melbourne apartment values in the medium term.

Prices

Despite the elevated vacancy levels of the Inner-City Melbourne precinct, values for Inner-City Melbourne apartments have increased solidly over the year. According to the REIV, median apartment prices increased to $655,000, up 8.4% over the year, to an all-time high. Interestingly, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth, increasing by 5.1% to $1,077,500 – a record high level. While the lack of international students have had a significant impact on the rents and vacancy rates, 1-bedroom apartment values have recorded another year of solid growth, having risen by 4.2% over the year to June 2021 to $408,000. Similar to the trend of other Inner-City Melbourne apartments, values of 2-bedroom apartments also increased over the year, rising to $641,000, an annual increase of 0.5%. Having traversed the worst of the pandemic, Urban Property expects that the declining apartment pipeline will shelter any significant falls of Inner-City Melbourne apartment values.

Supply

Currently there are 8,300 apartments under construction within the Inner-City Melbourne region. With 3,630 apartments already completed in 2021, Urban Property Australia research forecasts that 5,600 apartments will be completed this year. Of the 60 new developments currently under construction, 58% of the apartments are located in the CBD Core, followed by 23% in Southbank and 7% are located in Docklands. Looking ahead, while there are a further 35,000 apartments with plans approved in the Inner-City Melbourne region, Urban Property Australia’s research forecasts that the supply pipeline has peaked in the short term. Supply levels are projected to fall below the long-term average in 2022 for the first time since 2018.

Inner Melbourne New Apartment Supply

Demand

According to the City of Melbourne, the Inner-City precinct employment has fallen from 350,000 to 167,000 as a result of the pandemic. Looking ahead, employment is projected to near pre-COVID levels in 2025 as workers start to return in the CBD in a more frequent fashion. Despite the substantial decline in occupancy, employment and international student levels in the Inner-City precinct, transaction activity for apartments in the region remains resilient. Transactional volumes for apartments in the Inner-City Melbourne precinct has totalled 2,300 in 2021 to date and is on track to surpass levels recorded last year. Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will remain below the average level for the medium term with investor demand softened coupled with a lack of new supply. Having once accounted for 45% of all housing finance in early 2015, investor lending in Victoria now accounts for 27% of all loans.

Vacancy

According to the REIV, as at June 2021, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) has eased to 8.0% having peaked at 9.0% in March (an all-time high). While the vacancy rate has declined since March, the current level remains significantly above the 10-year average of 3.2% and levels of 3.4% as at June 2020. Looking ahead, Urban Property forecasts that the vacancy rates for the Inner Melbourne precinct will continue to trend down as employment in the CBD picks up, however the Inner-City residential vacancy rate is likely to remain above the long-term average for the next two years impacted by the lack of international students.

Rents

While Inner Melbourne apartment rents have fallen to their lowest levels in 10 years, Inner-City apartment rents have shown signs of plateauing with levels relatively stable since mid-2020. Having peaked at $460/week as at February 2020, Inner Melbourne apartment rents now average $400/week as at June 2021 according to the REIV. Urban Property Australia forecasts that although Inner Melbourne rents seem to have stabilised, demand would have to markedly lift to underpin rental growth and pre-COVID highs unlikely to be surpassed until 2023.

Inner Melbourne Residenital Vacant & Rents

Copyright © 2021 by Urban Property Australia All rights reserved. No part of this publication may be reproduced in any form, by microfilm, xerography, electronically or otherwise, or incorporated into any information retrieval system, without the written permission of the copyright owner.