While the Australian economy is expected to grow in 2023, the risk of recession across major advanced economies has risen and China’s growth outlook has increased downward risks to Australia’s outlook. Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets in these challenging times.

The risk of recession across major advanced economies has risen and China’s growth outlook has weakened. Australia has withstood the pandemic and recovered solidly, but Australia is not immune to the global challenges driving higher global inflation and slower global growth. While Australia’s economy is forecast to slow in 2023, unemployment is expected to stay around historic lows. Recent flooding across eastern states is expected to weigh on both exports and investment over coming quarters and is likely to add to inflation which also may increase downward risks to Australia’s outlook.

For a third consecutive quarter, both Melbourne’s residential house and apartment prices have declined, impacted by the rapid rise in interest rates. Melbourne’s median house prices are now 13% lower than the peak with apartment prices 7% lower than their peak. With Victoria’s population once again growing, current total annual Victorian housing finance commitments sit 54% above the 10-year average. The elevated housing finance levels have been underpinned by owner occupiers; however investors activity continues to gather momentum, accounting for a third of all housing loans.

While Inner-City residential apartment values appear to have peaked for the short term with apartment prices easing over September 2022 quarter, 3-bedroom apartments recorded the strongest annual growth. Of the apartments currently under construction across the Inner-City precinct, 46% of the apartments are located in the CBD Core, followed by 18% in Docklands and 13% are located in Southbank. Looking ahead, new apartment supply in the Inner-City Melbourne precinct is projected to remain below the 20-year average for the next five years.

Although prices have not fallen to the extent of those in the Melbourne metropolitan area, Victorian Regional housing prices have declined for two consecutive quarters for the first time since 2014. With demand surpassing availability, the vacancy rate for Regional Victoria remains very tight at 2.0% with the residential vacancy rate of Ballarat even lower at 1.5%.

Sales activity in Melbourne’s metropolitan office market has surpassed $1.60 billion in 2022 to date, accounting for 31% of all office sales transacted across Melbourne this year. Transactional activity across the metropolitan office market this year has been dominated by institutions with seven property sales in excess of $50 million, totalling $1 billion. Victoria’s total employment has increased by 145,000 over the year which has boosted tenant enquiries and leasing activity across Melbourne’s office markets.

Transactional activity in the Melbourne industrial market has exceeded $3.7 billion in 2022 to date, its second highest annual level on record. Industrial yields have marginally eased yields are expected to remain steady in the short term as investors aggressively continue to seek prime industrial investment opportunities. Rental growth gained momentum across all precincts in the Melbourne industrial market, with double digit recorded for both prime and secondary Melbourne industrial assets over the past year.

Sales volume in Melbourne’s retail property market has exceeded $1.48 billion in 2022 to date and is on track to reach the 10-year average, however investors remain cautious in the uncertainty of the behaviour of consumers post-pandemic. Online retail trade in Australia continues to gradually take a larger share of overall spending, making up 11% of total retail sales with Australian consumers spending approximately $44 billion online over the past 12 months.

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