Q3 2019 – Melbourne Apartment Market

  • Around 4,000 apartments are projected to be added to the Inn-City Melbourne precinct in 2019, the lowest annual total of new supply since 2013.
  • Apartment rents in the Inner-City Melbourne precinct continue to grow strongly, rising by 4% over the year to reach a record high with vacancy tight;
  • Inner-City Melbourne median apartment prices have stabilised, however remain 6.5% lower than their peak in early 2016, whereas apartment prices for the metropolitan area have trended up to all-time highs.
Inner-City Melbourne Apartment Summary

Constrained by tighter lending conditions for both developers and potential purchasers, the development pipeline for Inner-City apartments is projected to decrease in coming years despite the vacancy level falling below 2% and rents growing to all-time highs.


As at September 2019, there were 66,300 apartments in the City of Melbourne. Over the past decade, 45,700 apartments were added to the City of Melbourne, increasing the stock by 186% over the number of apartments available in 2009. Urban Property Australia forecasts that the level of new apartments which will be delivered to the City of Melbourne in 2019 will be lowest annual total of new supply since 2013. In 2019 to date, 2,548 apartments have been completed with a further 1,366 apartments scheduled for completion this year. Of the apartments projected to be completed in 2019, 40% are located in the Southbank followed with 17% located in North Melbourne and 15% based in the CBD.

Beyond 2019, currently there are 12,600 apartments under construction within the Inner-City Melbourne region scheduled for completion by 2022. Of the 30 new developments currently under construction and projected to be completed between 2020 and 2022, 51% of the apartments are located in the CBD Core, followed by 24% in Southbank and 9% are located in the Docklands.

Looking ahead, while there are a further 13,000 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. Although supply levels in 2020 through to 2022 are expected to be above average; from 2023, completions are projected to significantly decline. With development lending from major banks constrained, a number of projects previously being actively marketed have been withdrawn. UPA research analysis reveals that 3,000 apartments have had their plans shelved with major residential developments recently withdrawn for other uses including the 555 Collins Street, 85 Spring Street and 383 La Trobe Street projects with additional developments located along St Kilda Road and Southbank.

Inner Melbourne New Apartment Supply


In addition to the reduction of availability of housing finance, foreign investment demand has weakened significantly, impacted by a range of factors including the Chinese government’s updated guidelines on outbound investment coupled with the introduction of state-based taxes on foreign investors.

Latest Australian Foreign Investment Review Board (FIRB) data revealed that foreign residential real estate approvals continued to decline over the 2017/18 period. In 2017/18, foreign investment approvals for new dwellings fell by 24% compared to the previous year according to FIRB data. In fact, foreign residential real estate approvals have now declined by 63% since the peak of 2016/17.

Following more than a year of tightened lending conditions focussed on limiting the growth of investor loans for both domestic and offshore purchasers. Over the past year, sale transaction volumes for apartments in the Inner-City Melbourne precinct have fallen 35%.

While purchaser demand has been constrained, rental demand remains strong reflected by the current vacancy level of the Inner-City Melbourne precinct at only 1.8% as at August 2019, below the metropolitan average of 2.1%. According to the Australian Bureau of Statistics, the Inner-City area of Melbourne experienced the third largest growth in Victoria in 2017/18, increasing by 10,800 people (6.8%). The major driver of this growth was net overseas migration, which accounted for 82% of the population growth of the Inner Melbourne precinct.

Population projections indicate that the population within the City of Melbourne will increase to 181,325 by 2031. In order to accommodate that population growth, UPA forecast that a further 40,400 dwellings are required to be delivered in the precinct.

Melbourne Residential Vacanct Rate

Median Prices & Rents

Although Inner-City Melbourne median apartment prices appear to have stabilised at $500,000, values remain below the peak of $535,000 in early 2016 according CoreLogic data. In contrast, median prices of apartments for the broader metropolitan Melbourne market continue to increase with median prices increasing (albeit marginally by 0.2%) over the year to July 2018 to an all-time high of $531,000 according CoreLogic. Since September 2017, median values of apartments in the broader metropolitan area have been higher than those based in the Inner-City Melbourne area. While apartment prices have stabilised for both the broader metropolitan area and Inner-City precinct, average vendor discounting has increased for both areas over 2019 to around 5%, up from 4% at the end of 2018.

Buoyed by the low vacancy rates, apartment rents in the Inner-City Melbourne precinct continue to grow strongly, rising by 4% over the year to reach an all-time high of $530/week. Rents for apartments for the broader metropolitan area have echoed those in the inner-city precinct, increasing by 6% also to a new high level of $430/week.

The introduction of the Victorian government’s vacant residential property tax (VRPT) on January 2018 was intended to loosen vacancy and put downward pressure on rental levels by increasing rental supply, however the tax appears to not have had an impact to date.

Looking ahead, Urban Property Australia research expect rents to increase in the Inner-City precinct along with the broader metropolitan area supported by strong interstate and international migration and a declining pipeline of new apartments.

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