• Inner-City Melbourne apartment prices declined by 3.6% over 2022, with 1-bedroom apartments falling by 6.2%;
• The residential vacancy rate for the Inner-City precinct has fallen to 2.5%, its lowest level since April 2020;
• Inner Melbourne apartment rents reached all-time highs as at December 2022 with average rents, up 14% over the year; the first time in 10 years when annual rental growth exceeded 10%.

Inner-City Melbourne Apartment Summary

Inner Melbourne apartment rents have reached all-time highs vacancy rates fell to their lowest levels since early 2020. Average Inner Melbourne apartment rents rose by 14% over the year; the first time in 10 years when annual rental growth exceeded 10%. In contrast, values of Inner-City apartments have declined by 3.6% over the year led by declines of 1-bedroom apartments. With a growing population of Inner-City precinct again, the residential vacancy rate for the Inner-City precinct has fallen to their lowest levels in three years.

Prices

Similar to the broader housing market, values of Inner-City apartments have declined over the December 2022 quarter. Over the year to December 2022, Inner-City Melbourne median apartment prices declined by 3.6%, falling to $605,000 according to the REIV. Average prices of all Inner-City Melbourne apartment sizes declined over 2022, interestingly the decline of values of 3-bedroom Inner-City apartments was more modest than the smaller apartments, potentially reflecting the changing preferences of purchasers for more space and scarcity of product. Over 2022, median prices of Inner-City Melbourne 1-bedroom apartments declined by 6.2% to $380,000, compared with a decline of 2.0% for 2-bedroom Inner-City apartments to $645,000. In comparison, 3-bedroom Inner-City Melbourne apartment values fell by 1.7% over 2022 to $1,130,000. With interest rates having continued to rise, Urban Property expects that there will be further downward pressure of values of Inner-City Melbourne apartments in 2023 despite strong rental growth.

Supply

Currently there are 7,300 apartments under construction within the Inner-City Melbourne region. Over 2023, Urban Property Australia research forecasts that 3,000 apartments will be completed in the Inner-City Melbourne, below the 20-year average of 3,600. Urban Property Australia research forecasts that the pipeline of new apartments will decline to 2,500 in 2024 and 1,700 in 2024. Of the 48 new developments currently under construction, 40% of the apartments are located in the CBD Core, followed by 18% in Docklands and 16% are located in Southbank. Looking ahead, while there are a further 20,100 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

With a strong final quarter of 2022, transaction activity for apartments in the Inner-City region surpassed 4,800 sales over the year, the highest level of transactions in five years. The majority of transactions were focused on CBD-located apartments which accounted for 33% of all sales followed by Southbank (24%) and Docklands (15%). 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.

Vacancy

According to the REIV, as at December 2022, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.5%, its lowest level since April 2020. 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 fall as employment in the CBD picks up and international students return.

Rents

Inner Melbourne apartment rents reached all-time highs as at December 2022 as vacancy rates fell to their lowest levels since early 2020. According to the REIV, as at December 2022, average Inner Melbourne apartment rents rose to $475/week, up 14% over the year; the first time in 10 years when annual rental growth exceeded 10% in the Inner-City precinct. Over the year, average rents for 2-bedroom apartments grew by 15%, outperforming 3-bedroom apartment rentals which rose by 11% while 1-bedroom Inner-City apartment rents grew by 0.8%. Urban Property Australia forecasts that although Inner Melbourne rents have risen to all-time highs, further rental growth is likely with growing employment in the CBD and increasing housing affordability challenges.

Inner Melbourne Residential Vacancy & Rents

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