• Transactional activity for apartments in the Inner-City region remains relatively active with almost 5,500 sales recorded over 2023, its strongest year since 2017;
• Values of Inner-City apartments increased marginally over 2023, having increased by 0.5%, with larger apartments outperforming 1-bedroom apartments;
• Average Inner Melbourne apartment rents increased by 16% over the past 12 months, having once again hit another all-time high level.

Inner-City Melbourne Apartment Summary

Inner Melbourne apartment rents have reached all-time high levels as the vacancy rate remains below average with average Inner Melbourne apartment rents increasing by 16% over the year. Inner Melbourne apartment rents have now grown by 33% over the past two years. Currently there are 6,100 apartments under construction within the Inner-City Melbourne region with the majority of these apartments in the build to rent sector. Of the 44 new developments currently under construction, 44% of the apartments are located in Docklands, followed by 22% in Southbank and 17% in Kensington.

Prices

Values of Inner-City apartments increased marginally over 2023, having increased by 0.5%, increasing to $608,000 according to the REIV. While prices overall increased, the values of 1-bedroom and 2-bedroom Inner-City apartments declining while values of 3-bedroom apartments held steady. Over 2023, median prices of Inner-City Melbourne 1-bedroom apartments decreased by 0.5% to $378,000, with average values of 2-bedroom Inner-City apartments to falling by 2.3% over the year to $630,000 while values of 3-bedroom Inner-City Melbourne apartment values remained steady in the quarter at $1,130,000. While prices of Inner-City apartments will continue to be under pressure in the elevated interest rate environment, Urban Property expects that the strong rental growth should help stabilise any further significant falls of values.

Supply

Currently there are 6,100 apartments under construction within the Inner-City Melbourne region. Over 2023, Urban Property Australia research recorded just over 4,000 apartments completed in the Inner-City Melbourne, slightly above 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 with a further 2,300 in 2024 with the majority of these apartments in the build to rent sector. Of the 44 new developments currently under construction, 44% of the apartments are located in Docklands, followed by 22% in Southbank and 17% in Kensington. Looking ahead, while there are a further 19,600 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 average annual levels for the next five years despite the record population growth.

Inner Melbourne New Apartment Supply

Demand

Transactional activity for apartments in the Inner-City region remains relatively active almost 5,500 sales recorded over 2023, its strongest year since 2017. The majority of transactions were focused on Southbank and CBD-Core located apartments which collectively accounted for 58% 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.

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 December 2023, the residential vacancy rate for the Inner-City precinct (0-4km radius of the GPO) was 2.8%, up from 2.5% a year earlier, however higher than the low of 2.1% recorded in June 2023. 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

Inner Melbourne apartment rents have reached all-time high levels in December 2023 as the vacancy rate remains below average. According to the REIV, as at December 2023, average Inner Melbourne apartment rents rose to $550/week, up 16% over the year. Over 2023, average rents for all sized-bedroom apartments in the Inner-City precinct rose by at  least 15%, led by 2-bedroom apartments. 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.

Inner Melbourne Residential Rents

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