APPD Market Report Article

Melbourne

May 31, 2022

2.4%

AUD 430

Rents
Rising

Boutique projects targeting owner occupiers continue to sell well

  • Off-the-plan apartments sales remain very mixed. The market for quality owner-occupier stock is strong, but investor grade stock remains challenging.
  • Quarterly sales volumes are up 58% in 4Q21 compared to 3Q21 (CoreLogic). Nearly 10,000 apartments sold in the December 2022 quarter, compared to just 7,000 units in 3Q21. Annual sales volumes increased 59% y-o-y over 2021 relative to 2020, when around 20,500 units transacted. ​

The fall in new supply will aid market balance

  • New apartment supply is now very limited following an extended period of elevated supply. The fall in new supply will aid market balance and accelerate the consumption of residual unsold stock that still exits from the last supply cycle, particularly in and around the CBD. ​
  • Rental vacancy has fallen significantly across Greater Melbourne since borders opened, to be just 1.9% in March 22 (SQM Research). Vacancy is marginally higher within the inner postcode (3000) at 2.4% in March 2022, but is vastly lower than the double-digit COVID-19 peaks reached in 2020. Asking rents for 2-bed units rose 6% in the three months to May 2022, to be up 13.8% y-o-y (SQM Research).

Apartment price growth slows

  • Melbourne recorded strong growth in unit values over 2021, but growth has slowed in recent months. Growth over the three months to March 22 has been negative, but annual growth remains positive (5.3%). ​
  • Gross investment yields fall significantly (38 bps) over 2021 on the back of strong price growth and falling rents (CoreLogic). However, this trend appears to be near an end with price growth slowing and rents bouncing back from the initial COVID-19 slump.​

Outlook: Limited new supply to support market balance

  • With demand recovering and supply muted, we do not expect apartment prices to fall over the medium term, particularly as high detached house prices are pushing more demand back into apartments and provides price support for apartment prices.
  • The recovery in the rental market should also gain momentum now borders are open. Students and migrants returning should boost demand, while limited new stock will also support vacancy falling further and rental growth accelerating.​

Note: Melbourne Residential refers to Inner Melbourne apartments. Inner Melbourne data: Supply from JLL, rents from Department of Human Services Victoria, and vacancy from REIV. Greater Melbourne data: Price, sales volume and yields from CoreLogic.

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