While Victoria’s strict lockdown proved successful at halting the spread of the virus and the state forecast to expand the fastest of all Australia’s states in 2021 the impact of the pandemic on the property sectors will be everlasting. Urban Property Australia explores the effect of the pandemic on the property market to date and what may be next for Melbourne’s property markets.

Despite suffering its first economic recession in almost 30 years, Australia’s economy outperformed all the other advanced economies of the world in 2020 and has in fact recovered back to its pre-pandemic level as at April 2021. If not for the extraordinary policy support of governments and central banks globally, the overall impact of the coronavirus recession would have been three times larger with the global economy forecast to now expand by 6.0% in 2021.

Melbourne residential prices have surged in the first quarter of 2021, having grown by 5.6% to reach a new all-time high as buyer demand consistently outweighs new advertised supply. Buyer demand has been underpinned by owner occupiers, particularly first home buyers who recently accounted for 41% of all loans. In contrast, the vacancy rate for Melbourne residential property continues to rise having almost tripled over the year leading to rents to decline.

With the Inner-City precinct estimated to have lost 79,000 jobs as a result of the pandemic along with the closure of Australia’s borders (restricting international students), the vacancy rate for the Inner-City residential market has increased to 15-year highs. Despite the increase of vacancy, Inner-City apartment values have been maintained to date with median prices actually increasing into 2021.

Underpinned by the trend of people relocating from the metropolitan area with employees increasingly seeking to work remotely encouraged by their experiences during the pandemic, Victorian Regional residential markets continue to outperform the Melbourne Metropolitan. As purchaser demand continues to outweigh available stock, median Regional house prices and median Regional apartments prices have reached all-time highs.

Adversely impacted by the record levels of completions, the vacancy rate of the Melbourne metropolitan office market has increased to its highest level in 15 years. Despite tenants still cautious to make long-term commitments, investor activity in the Metropolitan office market was solid with sales volume reaching five-year highs last year, however transactions have been limited in 2021 to date. Elsewhere, within the CBD, the office vacancy rate also rose, driven by flood of sub-lease space as occupiers reconsidered their office needs.

While COVID-19 impacted supply chains, a rapid acceleration of e-commerce has led to a large amount of enquiry for additional industrial Increased spending on consumer staples and demand from logistics occupiers has underpinned tenant demand. Having proven to be resilient through the pandemic, investor demand for industrial assets continue to be incredibly strong.

For the first time on record, Victorian retail trade contracted last year as the influence of the Victorian lockdown reduced consumer spending patterns, however strong economic gains of 2021 has seen trade bounce back this year. With the lockdown having forced many occupiers to permanently close, the outlook for the sector is likely to be influenced by consumer confidence and the impact of fiscal support tailing off.

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