Q4 2024 – Executive Summary
January 20th 2025 | , Urban Property Australia
With global and domestic economic pressures weighing on many investor and occupier decisions, Australia is expected to gather momentum over the course of 2025. Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets during these complex times.
The global economy is holding steady, although performances vary widely across countries. Growth in the United States economy has been stronger than expected and an outlier compared with other advanced economies. Australia has outperformed many advanced economies in recent years and is on track for a soft landing. The Australian economy is projected to continue to gather momentum through 2025 driven by a recovery in household disposable incomes supported by moderating inflation, continuing employment and wage growth. The Victorian economy is forecast to grow by 2.5% in the year to June 2025 supported by stronger household consumption, increased infrastructure spending and elevated business investment levels.
Melbourne’s median residential house price has fallen to its lowest level since September 2020, having declined in 11 quarters in the past three years. Currently, median prices of both Melbourne houses and units remain significantly below their peak levels with median house prices 21% lower and median unit prices 10% below their peak. Reflecting the slowdown of construction activity, the vacancy rate for Melbourne residential property remains low at 2.4%. Metropolitan residential rents across all precincts increased over the past year with all sitting at all-time high levels.
Currently there are 6,500 Inner-City residential apartments under construction within the Inner-City Melbourne region, however only 1,400 new apartments were completed in the Inner-City Melbourne market over 2024, the third lowest level of new apartments supply in 20 years. Of the 46 new developments currently under construction, 38% of the apartments are located in Southbank, with the vast majority of the pipeline within the build-to-rent sector. With the vacancy rate remaining low coupled with the limited development pipeline, Inner Melbourne apartment rents are once again nearing all-time high levels.
With tenant demand subdued, vacancy rates of Melbourne’s office markets all stand at decade highs, with the metropolitan office market vacancy rate of 15.2% the lowest in comparison to the CBD at 18.0% and St Kilda Road in excess of 27%. Tenants remain cautious in the ongoing uncertain economic conditions and structural impacts of remote work leading to downward pressure of rents with incentive levels at historical highs . Tenant demand remains focused on prime quality offices offering modern amenities in order to attract employees physically back into offices.
Adversely impacted by the weak consumer consumption environment, leasing activity in the Melbourne industrial market was below the long-term average in 2024 with occupiers increasingly cautious, leading to the weakest level of leasing activity since 2018. Leasing activity in the Melbourne industrial market was dominated by stock located in the Western region which accounted for 65% of all leasing activity, with transport and logistics accounting for the majority of leased industrial space.
More than $1.25 billion transacted in the Melbourne retail property market over 2024 with transactional activity boosted by a number of larger transactions with five shopping centre sales above $100 million recorded in the year. Impacted by the increased cost of living, retail trade in Victoria eased through the past 12 months, albeit the state continues to outperform the national average growth rate. Online retail trade in Australia continues to gradually take a larger share of overall spending with online sales making up 13% of total retail sales in Australia.
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