• Inner Melbourne apartment rents continue to increase; recording their fastest annual increases in 10 years rising by 19% to all-time highs;
• Of the 7,500 apartments under construction within the Inner-City Melbourne region 34% of the apartments are located in the CBD Core, followed by 20% in Southbank and 17% in Docklands;
• Inner-City Melbourne apartment prices declined by 12% over the year to March 2023, with 3-bedroom Inner-City apartments faring the best.

Inner-City Melbourne Apartment Summary

Boosted by Inner Melbourne apartment rents growing at 19%, the fastest rate in 10 years, transactional activity for apartments in the Inner-City region has begun solidly with more than 1,500 sales recorded in the first quarter of 2023 and is on track to its strongest year since 2016. The majority of transactions were focused on Southbank-located apartments which accounted for 45% of all sales followed by those based in the CBD-Core. While prices of Inner-City apartments have fallen recently, the strong rental growth should help stabilise further significant declines of values.

Prices

Similar to the broader housing market, values of Inner-City apartments have declined over the year to March 2023. Over the year to March 2023, Inner-City Melbourne median apartment prices declined by 12.3%, falling to $578,500 according to the REIV. Average prices of all Inner-City Melbourne apartment bedroom-sizes declined over the year to March 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 year to March 2023, median prices of Inner-City Melbourne 1-bedroom apartments declined by 6.3% to $375,000, compared with a decline of 4.7% for 2-bedroom Inner-City apartments to $630,000. In comparison, 3-bedroom Inner-City Melbourne apartment values fell by 1.7% over the 12 months to March 2023 to $1,140,000. 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 7,500 apartments under construction within the Inner-City Melbourne region. Over 2023, Urban Property Australia research forecasts that almost 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 400 in 2024 before picking up to 1,300 in 2024. Of the 49 new developments currently under construction, 34% of the apartments are located in the CBD Core, followed by 20% in Southbank and 17% in Docklands. 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 1,500 sales recorded in the first quarter of 2023 and is on track to its strongest year since 2016. The majority of transactions were focused on Southbank-located apartments which accounted for 45% of all sales followed by those based in the CBD-Core (25%) and Docklands (8%). 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 March 2023, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.4%, down from 5.9% 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 and international students return.

Rents

Inner Melbourne apartment rents continue to increase with unprecedented levels reached in February 2023 as vacancy rates fell to two-year lows. According to the REIV, as at March 2023, average Inner Melbourne apartment rents rose to $500/week, up 19% over the year; its highest annual increase in 10 years. Over the year, average rents for 2-bedroom apartments grew by 22%, outperforming 1-bedroom apartment rentals which rose by 21% while 3-bedroom Inner-City apartment rents grew by 6%. 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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