• The vacancy rate for the Inner-City precinct continues to trend down however remains significantly above the 10-year average adversely impacted by decline of employment and international students;
• Currently there are 7,800 apartments under construction within the Inner-City Melbourne region with 45% of the apartments are located in the CBD Core, followed by 17% in Docklands;
• Inner-City apartment values appear to have peaked for the short term with apartment prices declining over March 2022 quarter with 3-bedroom apartments outperforming other sized apartments.

Inner-City Melbourne Apartment Summary

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

Prices

Inner-City apartment values appear to have peaked for the short term with apartment prices declining over March 2022 quarter. While prices have grown over the year, over the March 2022 quarter, Inner-City Melbourne median apartment prices decreased by 1.3%, falling down to $660,000 according to the REIV. Potentially reflecting the changing preferences of purchasers for more space and scarcity of product, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth, increasing by 11% to $1,160,000 – a record high level. In contrast, 1-bedroom apartment values fell by 1.2% over the year to $400,000. 2-bedroom Inner-City Melbourne apartment values increased by 4.1% over the 12 months to March 2022 to $661,000. With values having generally increased over the past two years, with the combination of declining new apartment pipeline and return of international students, Urban Property expects that values of Inner-City Melbourne apartments will remain steady for the medium term despite the likely interest rate rises.

Inner Melbourne New Apartment Supply

Supply

Currently there are 7,800 apartments under construction within the Inner-City Melbourne region. Over 2021, 4,600 apartments were completed in the Inner-City Melbourne, 26% above the 20-year average. Urban Property Australia research forecasts that 3,800 apartments will be completed this year, before falling to 2,200 in 2023. Of the 38 new developments currently under construction, 45% of the apartments are located in the CBD Core, followed by 17% in Docklands and 15% are located in Southbank. Looking ahead, while there are a further 32,800 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 are projected to remain below the 20-year average for the next five years.

Demand

To mitigate against the loss of employment across the Inner-City precinct, which has fallen from 350,000 to 167,000, the Victorian Government introduced stamp duty concessions to encourage purchasers back. Until 30 June 2022, a 50% stamp duty concession is available for new residential properties up to $1 million within the City of Melbourne. A full exemption is available for new residential properties that have been on the market for more than 12 months. Despite the substantial decline in occupancy, employment and international student levels in the Inner-City precinct, transaction activity for apartments in the region increased to its highest level since 2018. Transactional volumes for apartments in the Inner-City Melbourne precinct totalled 4,400 in 2021, 46% higher than levels recorded in the previous year, boosted by increasing investor interest. Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will continue to improve, albeit remain below the 10-year average as investor demand gathers momentum.

Vacancy

According to the REIV, as at March 2022, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 5.9% having previously declined to 5.0% in November 2021. The vacancy rate increased as a result of a number of major residential developments completed in late 2021 resulting the vacancy rate increasing to 6.8% as at December 2021. While vacancy rate has trended down since the peak of 9.0% in March 2021 (an all-time high) the current level remains significantly above the 10-year average of 3.3%. 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 and international students return but is likely to remain above the long-term average for the next two years.

Rents

While Inner Melbourne apartment rents fell to their lowest levels in 10 years in mid-2021, Inner-City apartment rents have now picked up. Having peaked at $460/week as at February 2020, Inner Melbourne apartment rents now average $420/week as at March 2022 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 Residential Vacancy & Rents

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