• Inner-City apartment values appear to have peaked for the short term with apartment prices easing over September 2022 quarter;
• The residential vacancy rate for the Inner-City precinct has fallen to 3.2%, its lowest level since May 2020, having trended down since the peak of 9.0% in March 2021;
• Inner Melbourne apartment rents continue to show signs of recovery with Inner-City apartments rents haven risen close to all-time highs.

Inner-City Melbourne Apartment Summary

While Inner-City apartment values appear to have peaked for the short term with apartment prices easing over the 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% 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.

Prices

Inner-City apartment values appear to have peaked for the short term with apartment prices easing over September 2022 quarter. Over the year to September 2022, Inner-City Melbourne median apartment prices declined by 5%, falling to $618,500 according to the REIV. Potentially reflecting the changing preferences of purchasers for more space and scarcity of product, 3-bedroom apartments in the Inner-City precinct recorded the strongest annual growth, increasing by 4.5% to $1,150,000. In contrast, 1-bedroom apartment values fell by 3.7% over the year to $390,000. 2-bedroom Inner-City Melbourne apartment values increased by 1.6% over the 12 months to September 2022 to $655,000. With values having generally increased over the past two years, with the combination of declining new apartment pipeline and return of international students, Urban Property expects that values of Inner-City Melbourne apartments will remain steady for the medium term despite the likely interest rate rises supported by growing rental rates.

Supply

Currently there are 7,000 apartments under construction within the Inner-City Melbourne region. Over 2022, Urban Property Australia research forecasts that 3,600 apartments will be completed in the Inner-City Melbourne, slightly below the 20-year average. Urban Property Australia research forecasts that the pipeline of new apartments will decline to 3,000 in 2023 and 2,600 in 2024. Of the 43 new developments currently under construction, 46% of the apartments are located in the CBD Core, followed by 18% in Docklands and 13% are located in Southbank. Looking ahead, while there are a further 20,600 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. New apartment supply in the Inner-City Melbourne precinct is projected to remain below the 20-year average for the next five years.

Inner Melbourne New Apartment Supply

Demand

Adversely impacted by higher borrowing rates, transaction activity for apartments in the Inner-City region is on track to record its second lowest level of activity in 10 years. Transactional volumes for apartments in the Inner-City Melbourne precinct have totalled 3,700 in 2022 to date, well below the 10-year average of 5,700. Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will improve, albeit remain below the 10-year average as investor demand gathers momentum.

Vacancy

According to the REIV, as at September 2022, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 3.2%, its lowest level since May 2020. While vacancy rate has trended down since the peak of 9.0% in March 2021 (an all-time high) the current level has fallen below the 10-year average of 3.3% for the first time since the pandemic. Looking ahead, Urban Property forecasts that the vacancy rates for the Inner Melbourne precinct will continue to fall as employment in the CBD picks up and international students return.

Rents

Inner Melbourne apartment rents continue to show signs of recovery. Having peaked at $460/week as at February 2020, Inner Melbourne apartment rents now average $450/week as at September 2022 according to the REIV, having increased by 5.0% over the year. Urban Property Australia forecasts that although Inner Melbourne rents have risen close to all-time highs, rental growth is likely to be more constrained for the short term as office occupancy (and employment requirements) in the Melbourne CBD remains relatively low in comparison to pre-COVID conditions.

Inner Melbourne Residential Vacanct & Rents

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