Q4 2021 – Executive Summary

While the performance of Melbourne’s property markets over the past two years has surpassed the expectations of most, the recovery across sectors remains imbalanced. The unevenness of the recovery is widespread with the industrial sector boundless whereas the CBD office sector is still only showing tentative signs of improvement. Urban Property Australia explores the latest status and discusses what may be next for Melbourne’s property markets.

The pandemic will continue to pose headwinds for the global and domestic recovery for some time to come, as demonstrated by the recent emergence of the Omicron variant. However, Australia’s high vaccination rate and increased investment in health system capacity, together with ongoing improvements in vaccines, are likely to assist in mitigating the downside risks to the economic outlook. The Australian economy is forecast to grow by 4.1% in 2022 and by 3.0% in 2023.

The price differential between Melbourne house and apartment residential prices has now expanded to an all-time high which may see more solid price growth for apartments in the short term. Although prices rose over the year, looking ahead, the increased level of housing values coupled with low income growth will weigh on housing demand in time as housing affordability challenges dampen purchaser demand.

Despite the elevated vacancy levels of the Inner-City Melbourne residential market, values for Inner-City Melbourne apartments continue to increase. Pleasingly the residential vacancy rate for the Inner-City precinct fell to 5.0% – its lowest level since August 2020.

With demand outstripping supply, Victorian Regional housing prices continue to gather momentum with both house prices and apartment prices reaching all-time highs. Regional house and apartment prices both increased by more than 25% over the year, whereas Metropolitan median house prices increased by 17% over the same period.

Sales activity in Melbourne’s metropolitan office market has surpassed $1.5 billion for the first time on record in 2021, almost triple the long-term annual average volume. The elevated sales activity in the Melbourne metropolitan office market was driven by domestic institutions with five transactions having exceeded $100 million. Australian institutions accounted for more than 50% of the volume of Melbourne’s metropolitan office transacted over 2021 while offshore groups accounted for only 5% of all sales, their lowest share in a decade.

Driven by insatiable investor appetite, transactional activity in the Melbourne industrial market surpassed $6 billion in 2021, its highest level on record. Indeed, the level of sales recorded in 2021 was triple the 10-year average annual volume of industrial sales in Melbourne. Influenced by the major portfolio transactions, offshore purchasers accounted for the majority of industrial properties sold over the year.

Investment activity in the Victorian retail property sector surpassed $2 billion in 2021. Sales volume was boosted by a number of sales of Sub-Regional shopping centres. Domestic private investors were active in the Melbourne retail property market, accounting for 38% of retail stock sold in the year. Yields were relatively stable across the retail sector as investors were prudent in order to assess retail trends beyond COVID.


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