Q2 2021 – Executive Summary

While the pandemic is expected to have a profound ongoing effect on Melbourne’s property markets, to date, the vast majority of sectors have proved to be more than resilient with many indicators reaching positive all-time records. Urban Property Australia explores the latest status and discusses what may be next for Melbourne’s property markets.

The Australian economy is transitioning from recovery to expansion phase earlier and with more momentum than anticipated. In response to the stronger economic activity and the labour market exceeding expectations, Australia’s GDP growth projections have been upgraded. Australia’s economy is forecast to grow by 4.75% over 2021 and 3.5% over 2022.

Despite the headwinds of various lockdowns and COVID-19 restrictions, Melbourne’s residential prices have once again set a new all-time high as at June 2021. Melbourne house prices grew by 21% over the year to June 2021, its fastest annual growth rate since 2010. Victorian housing owner occupier finance has surged in recent months to almost double the 10-year average with first home buyers at all-time highs.

Despite the elevated vacancy levels of the Inner-City Melbourne residential market, values for Inner-City Melbourne apartments have increased solidly over the year to reach an all-time high. Having traversed the worst of the pandemic, Urban Property expects that the declining apartment pipeline will shelter any significant falls of Inner-City Melbourne apartment values in the medium term.

With demand outstripping supply, Victorian Regional housing prices continue to gather momentum with both house prices and apartment prices outperforming the gains achieved in the Melbourne metropolitan area. The median Regional house price increased at their fastest rates on record to all-time highs as people relocated from Melbourne.

Sales activity in Melbourne’s metropolitan office market has picked up in recently with $775 million transacted in 2021 to date, almost matching the total volume recorded in 2020. Domestic institutions have increased their exposure to the metropolitan market having dominated transactions, accounting for almost half of office volume transacted in 2021 to date. Elsewhere, the total Melbourne CBD office vacancy has continued to increase through 2021 with its current rate at its highest level since the late 1990s.

While investor demand was already gaining traction pre-COVID, the exceptional growth of online spending during the pandemic has underpinned investor appetite for the sector. Across Melbourne’s industrial market, more than $3.4 billion was transacted, already exceeding the previous record annul level of $2.5 billion. Significant growth in online food channels last year has led occupier to continue to invest in their online supply chains. Some larger retailers are adopting hub and spoke models to expand their reach into highly populated areas.

Yields have continued to soften for the majority of retail asset types over the 12 months to July 2021 affected by the uncertainty of the behaviour of consumers post COVID and the growth of e-commerce. Over the year to May 2021, annual retail trade in Victoria grew by its highest level since 2019, having steadily increased since Victorian lockdown. Investment activity in the Victorian retail property sector has already surpassed $1 billion in 2021 to date with CBD-based assets accounting for 39% of the total volume.

Copyright © 2021 by Urban Property Australia All rights reserved. No part of this publication may be reproduced in any form, by microfilm, xerography, electronically or otherwise, or incorporated into any information retrieval system, without the written permission of the copyright owner.

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