• Average Inner Melbourne apartment rents increased by 13% over the past 12 months, driven by vacancy rates continuing to decline and a subdued development pipeline;
• Currently there are 6,400 apartments under construction within the Inner-City Melbourne region, however the vast majority of the pipeline of apartments are within the build-to-rent sector;
• Values of Inner-City apartments increased by 5% over the year to March 2024, outperforming the broader metropolitan apartment market, led by 1-bedroom apartments.

Inner-City Melbourne Apartment Summary

Values of Inner-City apartments increased by 5% over the year to March 2024, outperforming the broader metropolitan apartment market, led by 1-bedroom apartments, supported by a muted development pipeline. Currently there are 6,400 apartments under construction within the Inner-City Melbourne region, however with 2,500 apartments scheduled for completion this year, this year is projected to the second lowest level of new annual apartment supply to the market. Of the 48 new developments currently under construction, 42% of the apartments are located in Docklands, followed by 22% in Kensington and 21% in Southbank.

Prices

Values of Inner-City apartments increased by 5% over the year to March 2024, outperforming the broader metropolitan apartment market. According to the REIV, Inner-City Melbourne apartment median prices continue to recover, having increased to $607,500 as at March 2024. The values of 1-bedroom outperformed other sized Inner-City apartment values over the past 12 months, with median prices of 1-bedroom apartments rising to $380,000 as at March 2024. Values of 2-bedroom Inner-City apartments also increased over the past 12 months, whereas median prices of 3-bedroom apartments recorded marginally over the year having outperformed other apartments over the past three years. With solid rental growth coupled with a constrained pipeline, Urban Property forecasts that the strong values of Melbourne Inner-City apartments will be supported in the short term.

Supply

Currently there are 6,400 apartments under construction within the Inner-City Melbourne region. Over 2024, Urban Property Australia research projects the second lowest level of new Inner-City apartments delivered to the Melbourne market with 2,500 new apartments forecast to be completed over the year. The vast majority of the pipeline of new apartments for the Inner-City currently under construction are within the build-to-rent sector. Of the 48 new developments currently under construction, 42% of the apartments are located in Docklands, followed by 22% in Kensington and 21% in Southbank. Looking ahead, while there are a further 20,000 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 lively with just over 1,000 sales recorded over the first quarter of 2024, in comparison to the average quarterly volume of 1,400 sales. The majority of transactions were focused on Southbank and CBD-Core located apartments which collectively accounted for 52% of all sales followed by those based in the Docklands (15%). 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.

Annual lInner Melbourne Apartment Sales

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 March 2024, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.4%, the same rate as it was 12 months ago, 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 coupled with a relatively constrained pipeline of new apartments.

Rents

Inner Melbourne apartment rents have reached all-time high levels in February 2024, with current levels of $570 per week as at March 2024 only 2% below the record high levels. According to the REIV, as at March 2024, average Inner Melbourne apartment rents by 13% over the year. Over the year to March 2024, average rents for all sized-bedroom apartments in the Inner-City precinct rose by at least 13%, led by 2-bedroom apartments. 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.

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