• Inner-City Melbourne median apartment prices appear to be reaching a trough in 2023, with positive price growth recorded in the September quarter;
• Average Inner Melbourne apartment rents increased by 17% over the past 12 months, having reached all-time high levels earlier this year;
• Currently there are 5,800 apartments under construction within the Inner-City Melbourne region with 35% of the apartments are located in Docklands, followed by 23% in Southbank.

Inner-City Melbourne Apartment Summary

While values of Inner-City apartments have declined over the year to September 2023, median prices of all Inner-City Melbourne apartment bedroom-sizes recorded positive price growth in the past three months. Reflecting the low vacancy rate and constrained development pipeline, Inner Melbourne apartment rents increased by 17% over the year, just shy of all-time highs. Currently there are 5,800 apartments under construction within the Inner-City Melbourne region with 35% of the apartments are located in Docklands, followed by 23% in Southbank. Looking ahead, new apartment supply in the Inner-City Melbourne precinct is projected to remain below the average annual levels for the next five years.

Prices

While values of Inner-City apartments have declined over the year to September 2023, over the September quarter, Inner-City Melbourne median apartment prices increased by 1.9%, increasing to $605,000 according to the REIV. Average prices of all Inner-City Melbourne apartment bedroom-sizes declined over the year to September 2023 but appear to be reaching a trough in 2023, with all sizes recording positive price growth in the past three months. Interestingly, over the past 12 months, 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 September 2023 quarter, median prices of Inner-City Melbourne 1-bedroom apartments increased by 1.1% to $375,000, compared with an increase of 0.6% for 2-bedroom Inner-City apartments to $626,000 while values of 3-bedroom Inner-City Melbourne apartment values remained steady in the quarter at $1,130,000. 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 5,800 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 1,500 in 2024. Of the 45 new developments currently under construction, 35% of the apartments are located in Docklands, followed by 23% in Southbank and 18% in the Kensington. Looking ahead, while there are a further 19,700 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 average annual levels for the next five years despite the record population growth.

Inner Melbourne New Apartment Supply

Demand

Transactional activity for apartments in the Inner-City region remains relatively active with more than 4,300 sales recorded in 2023 to date 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 59% of all sales followed by those based in the Docklands (12%). 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 but may be moderated by the limited pipeline of new apartments.

Vacancy

While the Inner-City’s residential population has begun to recover the losses it suffered over the past two years, its population remains below the all-time high recorded in 2020. According to the REIV, as at September 2023, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.8%, down from 3.2% a year earlier, however higher than the low of 2.1% recorded in June 2023. 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 remain below 3% as employment in the CBD picks up, international students return and a constrained pipeline of new apartments.

Rents

Inner Melbourne apartment rents have stabilised having reached all-time high levels reached in June 2023 as the vacancy rate fell through the year. According to the REIV, as at September 2023, over the past 12 months, average Inner Melbourne apartment rents rose to $525/week, up 17% over the year, however have moderated slightly from the all-time high of $530/week recorded mid-year. Over the year, average rents for all sized-bedroom apartments in the Inner-City precinct rose by 20%. Urban Property Australia forecasts that although Inner Melbourne rents have close 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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