• Values for Inner-City Melbourne apartments have increased solidly over the year, reaching an all-time high despite the lack of international students and subdued investor demand,
• The vacancy rate for Inner-City precinct is projected to have peaked with the total vacancy rate falling to its lowest level in 12 months;
• Of the 32 new developments currently under construction, 62% of the apartments are located in the CBD Core, followed by 19% in Southbank and 10% are located in West Melbourne.

Inner-City Melbourne Apartment Summary

Despite the elevated vacancy levels of the Inner-City Melbourne precinct, 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.

Inner Melbourne Apartment Supply

Prices

Despite the elevated vacancy levels of the Inner-City Melbourne precinct, values for Inner-City Melbourne apartments have increased solidly over the year. According to the REIV, median apartment prices increased to $650,500, up 5.0% over the year, to an all-time high. Interestingly, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth, increasing by 4.8% to $1,100,000 – a record high level. While the lack of international students have had a significant impact on the rents and vacancy rates, 1-bedroom apartment values continued to increase, having risen by 1.3% over the year to September 2021 to $405,000. Similar to the trend of other Inner-City Melbourne apartments, values of 2-bedroom apartments also increased over the year, rising to $645,000, an annual increase of 0.8%. 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.

Supply

Currently there are 6,000 apartments under construction within the Inner-City Melbourne region. With 4,300 apartments already completed in 2021, Urban Property Australia research forecasts that 5,000 apartments will be completed this year. Of the 32 new developments currently under construction, 62% of the apartments are located in the CBD Core, followed by 19% in Southbank and 10% are located in West Melbourne. Looking ahead, while there are a further 34,500 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. Next year, supply levels are projected to fall to their lowest levels since 2012.

Demand

According to the City of Melbourne, the Inner-City precinct employment has fallen from 350,000 to 167,000 as a result of the pandemic. Looking ahead, employment in the Inner-City precinct is projected to take a number of years to recover with employment to near back to pre-COVID levels in 2025. Despite the substantial decline in occupancy, employment and international student levels in the Inner-City precinct, transaction activity for apartments in the region remains resilient. Transactional volumes for apartments in the Inner-City Melbourne precinct has totalled 3,200 in 2021 to date having already surpassed levels recorded last year, boosted by increasing investor interest. Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will remain below the average level for the medium term with investor demand softened coupled with a lack of new supply. Having once accounted for 45% of all housing finance in early 2015, investor lending in Victoria now accounts for 29% of all loans.

Vacancy

According to the REIV, as at September 2021, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) fell to 5.7% having peaked at 9.0% in March (an all-time high). While the vacancy rate has declined since March, the current level remains significantly above the 10-year average of 3.3%. Looking ahead, Urban Property forecasts that the vacancy rates for the Inner Melbourne precinct will continue to trend down as employment in the CBD picks up, however the Inner-City residential vacancy rate is likely to remain above the long-term average for the next two years impacted by the lack of international students.

Rents

While Inner Melbourne apartment rents have fallen to their lowest levels in 10 years, Inner-City apartment rents have now increased to their highest levels since June 2020. Having peaked at $460/week as at February 2020, Inner Melbourne apartment rents now average $420/week as at September 2021 according to the REIV. Urban Property Australia forecasts that although Inner Melbourne rents seem to have stabilised, demand would have to markedly lift to underpin rental growth and pre-COVID highs unlikely to be surpassed until 2023.

Inner Melbourne Residential Vacancy & Rents

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