Q3 2020 – Melbourne Apartment Market
October 15th 2020 | , Urban Property Australia
- Almost 8,000 apartments are projected to be completed in the Inner-City Melbourne precinct in 2020, the third highest annual total of new supply;
- Rents for Inner-City apartments have fallen substantially over 2020, having declined by 13% between February and August;
- The vacancy rate for Inner-City precinct has increased to eight-year highs, with a risk of further increases.
With the pipeline of supply above average and subdued rental conditions likely to persist for the short term given the lack of international migration, Inner-City apartment values (particularly investor owned) are likely to remain under pressure despite prices steady in 2020 to date.
Somewhat surprisingly, prices for Inner-City apartments have been relatively steady through 2020 to date with a median price of $515,000, although values remain the peak of $535,000 in early 2016 according to CoreLogic. The performance of the Inner-City apartment market mirrors the movement of prices for apartments across the broader metropolitan Melbourne market which have recorded only a fall of 1% over the year. Although Inner-City apartments prices have remained steady in 2020 to date, Urban Property Australia still maintain that there remains a risk of price falls with fiscal policy initiatives and government incentives likely to have insulated the Inner-City apartment market from falls in value.
In 2020 to date, 2,400 apartments have been completed with a further 5,400 apartments scheduled for completion this year. The number of apartments projected to be completed this year would mark it the third largest year of apartment completions for the Inner-City market. Currently there are 15,300 apartments under construction within the Inner-City Melbourne region scheduled for completion by 2024. Of the 72 new developments currently under construction and projected to be completed by 2024, 62% of the apartments are located in the CBD Core, with 26% based in Southbank and 5% located in the Docklands.
Inner Melbourne New Apartment Supply
Impacted by the border closures of Australia, the dearth of international students and lack of employment requirements within the Inner-City precinct, transaction volumes for apartments in the Inner-City Melbourne precinct have fallen to their lowest levels in six years with only 2,000 sales in 2020 to date. Sales activity for Inner-City apartments are expected to remain subdued with investor demand to be softened with international migration likely to constrained until 2022. Having once accounted for 45% of all housing finance in early 2015, investor lending in Victoria now accounts for 25% of all loans.
According to the REIV, as at August 2020, the vacancy rate for Inner-City precinct has increased to eight-year highs, with the 0-4km precinct increasing to 4.9% (up from 1.6% as at August 201) while the residential vacancy rate for properties in the 4-10km radius of the GPO increased to 5.1%, from 2.0% a year earlier. Looking ahead, given the elevated pipeline of new apartments under construction coupled with the lack of demand from students and industries hardest hit for job losses Urban Property Australia forecasts that the vacancy rate for the Inner-City precinct will remain above the five-year average until 2023.
Echoing the sharp decline of demand and increasing vacancies, rents for Inner-City apartments have fallen substantially over 2020. Having reached record highs as at $460/week as at February 2020, rents have fallen $400/week as at August 2020 according to the REIV. Average rents for Inner-City apartments have now fallen to their lowest levels since 2014. Looking ahead, Urban Property Australia research expect that rental levels for Inner-City apartment rent will continue to decline through 2021 given the lack of international migration and weakening labour market.
Inner Melbourne Residential Vacancy & Rents
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