Q3 2021 – Executive Summary

Melbourne property markets gather momentum

Despite holding the unenviable title of world’s most locked down city, Melbourne’s property markets continue to gather momentum as the outlook for businesses improve on the back of record setting vaccination rates and the city’s population keen to make the most of their new found freedom. Urban Property Australia explores the latest status and discusses what may be next for Melbourne’s property markets.

While the Delta strain has required a more measured reopening of the economy in affected areas than in the past, the Australian economy entered this challenging period in a strong position and fiscal policy is directly supporting households and businesses in the affected areas. Australia’s economy is forecast to grow by 4.0% over 2021 and gain further momentum in coming years.

Despite the headwinds of various lockdowns, Melbourne’s residential prices have once again set a new all-time high as at September 2021. Melbourne house prices grew by 18% over the year to September 2021, its fastest annual growth rate since 2009. Victorian housing owner occupier finance has surged in recent months to almost double the 10-year average with investor finance increasing to 10-year highs.

Despite the elevated vacancy levels of the Inner-City Melbourne residential market, values for Inner-City Melbourne apartments continue to increase. Pleasingly the residential vacancy rate for the Inner-City precinct fell to 5.7% – its lowest level in 12 months.

With record levels of people relocating from the Melbourne Metropolitan area, 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 surged in the second half of 2021 with more than $1 billion transacted in 2021 to date, almost doubling its long-term average. Domestic institutions have increased their exposure to the metropolitan market having dominated transactions, accounting for almost 80% 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.

Boosted by a number of large portfolio sales, more than $4.3 billion has been transacted in the Melbourne industrial market in 2021 to date, already exceeding the previous record annul level of $2.5 billion. With the share of online retail reaching all-time highs and increasing demand larger facilities to accommodate automated supply chain requirements the Melbourne industrial vacancy rates has fallen below 2%.

Investment activity in the Victorian retail property sector has already surpassed $1.7 billion in 2021 to date, its second highest annual level in five years. Despite the increased sales activity, yields continued to soften for the majority of retail asset types over the 12 months to September 2021 affected by the uncertainty of consumers post-pandemic and the growth of e-commerce. Over the year to August 2021, annual retail trade in Victoria grew by its highest level since 2019, having steadily increased since late 2020.


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