• Values of Inner-City apartments decreased by 0.3% over the year to September 2024, however median prices increased over the quarter;
• 37% of the apartments currently under construction across the Inner-City region are located in Southbank, followed by 33% in the Docklands and 18% in Kensington;
• With the vacancy rate having recently increased, Inner Melbourne apartment rents have declined from all-time high levels recorded earlier this year.

Inner-City Melbourne Apartment Summary

Surprisingly, values of Inner-City apartments outperforming 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.

Prices

Values of Inner-City apartments decreased by 0.3% over the year to September 2024, outperforming the broader metropolitan apartment market, albeit marginally. Interestingly, according to the REIV, Inner-City Melbourne apartment median prices increased over the quarter, rising to $603,500 as at September 2024. The values of 1-bedroom outperformed other sized Inner-City apartment values over the past 12 months, with median prices of 1-bedroom apartments rising to $382,500 as at September 2024. Values of 2-bedroom Inner-City apartments also increased over the past 12 months, whereas median prices of 3-bedroom apartments declined marginally over the year having outperformed other apartments over the past three years. With solid rental growth coupled with a constrained pipeline, Urban Property forecasts that the strong values of Melbourne Inner-City apartments will be supported in the short term.

Supply

Currently there are 6,900 apartments under construction within the Inner-City Melbourne region. Over 2024, Urban Property Australia research projects the second lowest level of new Inner-City apartments delivered to the Melbourne market in 15 years with 2,300 new apartments forecast to be completed over the year. The vast majority of the pipeline of new apartments for the Inner-City currently under construction are within the build-to-rent sector. Of the 49 new developments currently under construction, 37% of the apartments are located in Southbank, followed by 33% in the Docklands and 18% in Kensington. Looking ahead, while there are a further 20,000 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 average annual levels for the next five years despite the near all-time record population growth and state government incentives.

Inner Melbourne New Apartment Supply

Demand

Transactional activity for apartments in the Inner-City region remains relatively lively with 4,0300 sales recorded over the year to date. The majority of transactions were focused on Southbank and CBD-Core located apartments which collectively accounted for 56% of all sales followed by those based in the Docklands (12%). Looking ahead, Urban Property Australia’s research forecasts that the transactional activity of the Inner-City apartment market will continue to strengthen as investor demand gathers momentum buoyed by the recovering rental levels but may be moderated by the limited pipeline of new apartments.

Annual Inner Melbourne Apartment Sales

Vacancy

While the Inner-City’s residential population has begun to recover the losses it suffered over the past two years, its population remains below the all-time high recorded in 2020. According to the REIV, as at August 2024, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.7%, in line with the rate recorded 12 months ago. While vacancy rate has trended down since the peak of 9.0% in March 2021 (an all-time high), looking ahead, Urban Property forecasts that the vacancy rates for the Inner Melbourne precinct will continue to remain below 3% as employment in the CBD picks up, international students return coupled with a relatively constrained pipeline of new apartments.

Rents

With the vacancy rate having recently increased, Inner Melbourne apartment rents have declined from all-time high levels recorded in February 2024. As at August 2024, median Inner Melbourne apartment rents are $550 per week, having increased by 5% over the year, according to the REIV. Over the year to August 2024, average rents for all sized-bedroom apartments in the Inner-City precinct rose by at least 3%, somewhat surprisingly led by 3-bedroom apartments which increased by 10% over the year. Urban Property Australia forecasts that although Inner Melbourne rents have close to all-time highs, further rental growth is likely with growing employment in the CBD and below-average supply pipeline.

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