Q1 2022 – Executive Summary

With the worst of the pandemic having seemingly been successfully traversed, Melbourne’s property markets continue to gather momentum as increases in mobility and improved business conditions builds confidence across investors and occupiers. Urban Property Australia explores the latest status and discusses what may be next for Melbourne’s property markets.

The Australian economy has proved remarkably resilient to the ongoing impacts of the pandemic, consistently outperforming expectations and all major advanced economies. Forecasts for economic activity have been revised up significantly, reflecting stronger-than-expected momentum in the labour market and consumer spending. The ongoing pandemic, Russian invasion of Ukraine, strained supply chains and rising inflationary pressures all present risks to the global and domestic outlooks. Nonetheless, the resilience of the Australian economy throughout the pandemic demonstrates that the economy is well placed to adapt to these new developments.

Despite Victoria’s population declining, current total annual Victorian residential housing finance commitments sit 65% above the 10-year average and reached all-time highs in February 2022 with $108 billion financed. Investors now account for 30% of total housing finance commitments in Victoria, their highest proportion since 2018. Although first home buyers remain active in the market, levels appear to have peaked with levels decreasing 24% over the year.

Despite the substantial decline in office occupancy, employment and international student levels in the Inner-City precinct, Inner-City Melbourne residential apartment transaction activity has increased to its highest level since 2018. Reflecting the changing preferences of purchasers for greater space and scarcity of product, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth all apartment types.

While Melbourne’s population decreased by 60,500 over the year with many relocating to the regions, demand for Regional housing continues to outstrip supply resulting in solid price growth. Both house prices and apartment prices of Regional Victoria reached all-time highs as at March 2022. Regional house prices outperformed Regional apartment prices over the year increasing the price spread between houses and prices to a record level.

With an improving level of tenant demand, the vacancy rate of the Melbourne metropolitan office market has stabilised, however the vacancy rates of all Melbourne office markets remain above their 10-year averages. Sales activity in Melbourne’s metropolitan office market has surpassed $250 million in 2022 to date, accounting for almost 40% of all sales transacted across Melbourne this year. Despite potentially structural changes of working styles, yields compressed in the metropolitan office market as institutions become more active in the sector.

With institutional groups increasingly boosting their exposure to the industrial sector, new supply of industrial stock in Melbourne is projected surpass one million square metres for three consecutive years. New supply continues to struggle to meet the robust demand from occupiers with 65% of new supply pre-committed. The bulk of the new stock expected to be completed this year is located in the Western and South Eastern regions

Lower COVID-19 case numbers in February, alongside the further easing of restrictions over the month, saw consumer spending return to similar behaviour seen previously. Retail trade has recovered strongly in Victoria and is now growing faster than the national average. Over the year to February 2022, annual retail trade in Victoria grew by 9.0%, more than double the 10-year trade average of 3.8%. In comparison, Australian annual retail trade grew by 5.3% as at February 2022.


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