APPD Market Report Article

Melbourne

February 28, 2022

-19.2%

AUD 400

Rents
Stable

Investor demand remains subdued

  • The market for quality owner-occupier stock is strong, but demand for larger investor grade projects remains limited. Nevertheless, demand should improve significantly in 2022 as borders open and migrants and students return, aiding the take-up of residual stock in the market.
  • Quarterly sales volumes are up 86% in 3Q21, relative to 3Q20 (CoreLogic). While annual sales volumes have risen 42% over the year to 4Q21.

Supply levels likely to fall further

  • With investor demand and pre-sales moderate, few larger projects are commencing and supply is likely to fall further and stay moderate for some time. As developers have shifted to cater for the owner-occupier market, this segment of the market has now become quite competitive, particularly in targeting downsizers.
  • Rental vacancy across Greater Melbourne is at 3.2% in Dec-21 (SQM Research). However, vacancy within the CBD and inner ring is much higher at 5.7% in Dec-21. Asking rental rates have stablised and returned to growth on a weekly, monthly and quarterly basis to January 2022.

Price growth begins to moderate

  • Strong growth in apartment values over 2021 saw the market rise by 8.1% (CoreLogic, January 2022). However, price growth for apartments and detached houses has slowed over recent months as the level of listings in the existing housing market have risen.
  • While the rental market appears to be stabilising, strong recent price growth has seen gross investment yields fall significantly over 2021. However, this trend appears near an end with price growth slowing and rents improving.

Outlook: Residual supply should start disappearing more quickly

  • Supply is likely to remain muted over the medium term, as larger projects will remain difficult to commence. Further, developers are also likely to keep focusing on high quality boutique developments, albeit we anticipate a continued rise in interest from institutional capital in Build-To-Rent models.
  • However, it is the opening of international borders and the return of students and migrants that should really help accelerate the take-up of residual stock in the market and see the recovery of the rental market really gain momentum in 2022.

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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