The Australian economy has stalled through 2024 as elevated cost of living pressures has led to both businesses and consumers becoming increasingly cautious. Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets in these uncertain times.

The global economy remained resilient this year to date, with many central banks commencing an easing of monetary policy settings as inflation levels reduce. The shift in policy mix is occurring against a backdrop of conflicts intensifying and trade tensions escalating within a soft global economy. While the Australian economy has stalled in the first half of 2024, economic growth is projected to increase further in 2025, reflecting recent announcements by federal and state and territory governments. The Victorian economy continues to grow, despite the challenges of high inflation and elevated interest rates with its economy forecast to grow by 2.50% over the year to June 2025.

In order to encourage residential supply, the Victorian state government has recently announced two policies that aim to give developers an incentive to build with stamp duty savings for off-the-plan sales and greater density allowed across 50 new activity centres. Reflecting the tight levels of new supply, the vacancy rate for Melbourne residential property remained remains below the 10-year average, with the current level sitting at 2.4%. Melbourne’s median house price marginally increased in the September 2024 quarter, however, continues to be outperformed by their interstate counterparts.

Surprisingly, values of Inner-City residential apartments outperformed the broader metropolitan apartment market, albeit marginally, recording a slight decline in prices. The values of 1-bedroom outperformed other sized Inner-City apartment values over the past 12 months. Currently there are 6,900 apartments under construction within the Inner-City Melbourne region, however over 2024, Urban Property Australia research projects the second lowest level of new Inner-City apartments delivered to the Melbourne market in 15 years. The vast majority of the pipeline of new apartments for the Inner-City currently under construction are within the build-to-rent sector.

While Victoria’s total employment has increased by 151,000 over the year, the state’s unemployment rate rose to 4.4% as at September 2024, up from 3.5% a year earlier. Despite Victoria’s employment base increasing, tenant enquiry for office space is modest, as tenants are increasingly more cautious with economic conditions mixed. Similar to occupiers, investors also remain cautious with sales activity across the Melbourne office market on track for its lowest annual level of sales in 20 years. Reflecting the soft tenant demand environment, rents remain under downward pressure as landlords compete for limited opportunities.

Transactional activity in Melbourne’s industrial property market has surged in the third quarter of the year with more than $1 billion of sales recorded over the quarter. Over 2024 to date, more than $2.5 billion of Melbourne industrial sales has now been recorded by Urban Property Australia, already higher than the 10-year annual average. Looking ahead, foreign investment levels may soften in Victoria due to the recently imposed absentee owner surcharge and land tax which may lead investors exploring other states.

More than $1.3 billion has been transacted in the Melbourne retail property market over 2024 to date and is on track to be the highest annual total since 2021. The sales volume has been boosted average levels with five sales above $75 million recorded. Yields continue to soften, albeit expanding more modestly than previous quarters. Online retail trade in Australia continues to gradually take a larger share of overall spending with Australian consumers spending approximately $48 billion online over the past 12 months.

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