Melbourne residential supply to stay moderate over the next few years

Approximately 4,700 apartments will be completed in Inner Melbourne this year.

According to a JLL report, just under 4,700 apartments are expected to be completed in Inner Melbourne in 2023. This is higher than 2022, but still much lower than the average from 2016 to 2021 of over 7,100. 

Moreover, supply is likely to stay moderate for several more years as few large projects are progressing to construction in a difficult development environment.

Here’s more from JLL:

Rental vacancy in Melbourne has fallen to just 1.2% in September 2023, well below the peak of over 5% reached in late-2020 during the COVID-19 pandemic. The return of foreign students has been a major factor in this rental market recovery.

Demand recovering

While there remained some headwinds for housing generally, affordability has been supporting apartment demand in a higher interest rate environment. However, it was the massive rebound in migration and foreign student arrivals that was underpinning medium-term demand recovery prospects for Melbourne apartments.

Off-the-plan sales remained muted for higher density apartment projects and particularly from investors. Nevertheless, there continued to be robust demand for smaller projects in premium locations from owner occupiers, particularly downsizers.

Prices recover

The recovery in rents in Melbourne has lagged other markets, but asking rents for 2-bedroom apartments have still achieved double digit annual growth and are now back well above pre-COVID-19 levels.

Similarly, Melbourne existing apartment prices have also lagged the recovery in other markets. Nevertheless, prices have grown steadily over the past six months and are now have grown slightly over the year to September 2023.

Outlook: Steady improvement to continue

Sales of off-the-plan apartments are likely to continue to increase. Affordability is likely to push more demand to apartments and the strong rebound in population inflow is an enormous boost that the underlying demand for housing in Melbourne has to be realised at some point.

Moderate new supply is likely to have little effect on alleviating Melbourne’s tight rental market over the near term. Hence, upward pressure on rents is likely to persist, and the only constraints will likely be affordability and wage growth.

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