• Inner Melbourne apartment rents continue to increase with all-time high levels reached in June 2023, up 22% over the year;
• While Inner-City Melbourne median apartment prices have declined over the past 12 months, over the June quarter, prices increased by 2.3%;
• Currently there are 6,100 apartments under construction however Urban Property Australia’s research forecasts that the supply pipeline has peaked in the short term.

Inner-City Melbourne Apartment Summary

Boosted by the return of international students, Inner Melbourne apartment rents continue to increase with all-time highs recorded in June 2023 as vacancy rates fell to levels last recorded in 2019. Average Inner-City Melbourne apartment rents increased by 22% over the year; its highest annual increase in 10 years with 1-bedroom apartments outperforming other sized Inner-City apartments. Transactional activity for apartments in the Inner-City region has begun solidly with more than 2,900 sales recorded in the first half of 2023 and is on track to its strongest year since 2017 with the majority of transactions for Southbank and CBD-Core located apartments.

Prices

Similar to the broader Melbourne housing market, values of Inner-City apartments have declined over the year to June 2023 but showing signs of stabilising. Over the June 2023 quarter, Inner-City Melbourne median apartment prices increased by 2.3%, increasing to $594,000 according to the REIV. Average prices of all Inner-City Melbourne apartment bedroom-sizes declined over the year to June 2023 but appear to be reaching a trough in 2023, interestingly the decline of values of 3-bedroom Inner-City apartments was more modest than the smaller apartments, potentially reflecting the changing preferences of purchasers for more space and scarcity of product. Over the June 2023 quarter, median prices of Inner-City Melbourne 1-bedroom apartments declined by 1.3% to $370,000, compared with a decline of 0.8% for 2-bedroom Inner-City apartments to $625,000.3-bedroom Inner-City Melbourne apartment values fell by 1.3% over the June 2023 quarter to $1,123,500. While prices of Inner-City apartments will continue to be under pressure in the elevated interest rate environment, Urban Property expects that the strong rental growth should help stabilise any further significant falls of values.

Supply

Currently there are 6,100 apartments under construction within the Inner-City Melbourne region. Over 2023, Urban Property Australia research forecasts that just over 4,000 apartments will be completed in the Inner-City Melbourne, slightly above the 20-year average of 3,600. Urban Property Australia research forecasts that the pipeline of new apartments will decline to 500 in 2024 before picking up to 1,300 in 2024. Of the 44 new developments currently under construction, 25% of the apartments are located in Southbank, followed by 21% in Docklands and 18% in the CBD Core. Looking ahead, while there are a further 20,800 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. New apartment supply in the Inner-City Melbourne precinct is projected to remain below the levels recorded in 2021 for the next five years.

Inner Melbourne New Apartment Supply

Demand

Transactional activity for apartments in the Inner-City region has begun solidly with more than 2,900 sales recorded in the first half of 2023 and is on track to its strongest year since 2017. The majority of transactions were focused on Southbank and CBD-Core located apartments which collectively accounted for 66% of all sales followed by those based in the Docklands (9%). Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will continue to strengthen as investor demand gathers momentum buoyed by the recovering rental levels.

Vacancy

While the Inner-City’s residential population has begun to recover the loses it suffered over the past two years, its population remains below the all-time high recorded in 2020. According to the REIV, as at June 2023, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.3%, down from 3.9% a year earlier. While vacancy rate has trended down since the peak of 9.0% in March 2021 (an all-time high), looking ahead, Urban Property forecasts that the vacancy rates for the Inner Melbourne precinct will continue to fall as employment in the CBD picks up, international students return and a constrained pipeline of new apartments.

Rents

Inner Melbourne apartment rents continue to increase with all-time high levels reached in June 2023 as vacancy rates fell to levels last recorded in 2019. According to the REIV, as at June 2023, average Inner Melbourne apartment rents rose to $525/week, up 22% over the year; its highest annual increase in 10 years. Over the year, average rents for 1-bedroom apartments grew by 24%, outperforming 2-bedroom apartment rentals which rose by 22% while 3-bedroom Inner-City apartment rents increased by 7%. Urban Property Australia forecasts that although Inner Melbourne rents have risen to all-time highs, further rental growth is likely with growing employment in the CBD and below-average supply pipeline.

Inner Melbourne Residential Vacancy & Rents

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