APPD Market Report Article


February 28, 2023

Leigh Warner, Senior Director - Residential Research, Australia


AUD 450


Demand softens, but remains robust

  • Melbourne’s apartment market has not been immune from the broader housing market softening over 2022 as interest rates have risen. Nevertheless, demand levels remain well above 2019 and 2020 levels and parts of the market remain robust, particularly from downsizers for quality boutique developments in premium locations. Investor demand remains more subdued, but not totally non-existent.
  • Rental demand has been strong in Melbourne over recent months, fueled by a return of migrants and students. There were several major BTR completions in Melbourne in late-2022 and early signs suggest that market acceptance has generally been strong.  

Completions are low in Melbourne over 2022

  • A total of 2,828 apartments reached completion in 2022 across Inner Melbourne. This compares to an average of 7,140 per annum the previous six years and reflects the weaker pre-sales demand conditions through COVID-19.
  • Supply will remain a similar level in 2023 and stay moderate for at least several more years. This reflects the handbrake that higher construction and financing costs has put on developers more recently in getting their project out of the ground. The pipeline may expand somewhat from here as construction costs ease and the return of students, migrants and foreign investors boost pre-sale demand. 

Median apartment prices have fallen

  • Annual sales volumes over 2022 were around 30% down on the highs of 2021. Nevertheless, sale volumes were still well above the level of sales in 2019 and 2020 when around 20,000 per annum settled. While a little sporadic, the pace of monthly apartment sales has remained relatively strong over 2022 despite easing from the extremely strong levels of 2021.
  • Melbourne recorded a 1.6% decline in median unit prices over the three months to December 2022, although it has slowed slightly in recent months. Despite this, in annual terms prices have fallen 4.8%, which compares to -9.4% for houses (CoreLogic). Falling capital values and rising rents have seen Melbourne gross apartment rental yields rise by around 40 basis points over the past year.

Outlook: Apartments likely past the worst of the storm

  • Melbourne’s housing market will continue to slow as the broader market impacts of higher interest rates weigh on demand. However, apartments should stabilise relatively quickly due to higher migration and affordability relative to houses both supporting demand levels.
  • On the supply side, completions will be much lower the next five years in a challenging development environment. Lower supply will mean little relief for the rental market and pressures are only likely to intensify. BTR stock will eventually be some relief for Melbourne’s rental stock, but the bulk of the city’s relatively large pipeline is still several years from completion. 

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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