MELBOURNE PROPERTY MARKET OVERVIEW - 1group.com.au - 1Group Property Advisory
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PROPERTY MARKET OVERVIEW MELBOURNE 1group.com.au
FROM THE DIRECTORS Despite two lock-downs affecting property values during 2020, the Melbourne residential property market remains the second strongest of the capital cities, with strong residual growth in both houses and units and the second highest median house values of any market in Australia. In March 2020, just prior to the first lock- down due to the COVID-19 pandemic, the Melbourne market reached an all time peak in median house price values. This followed several years of slow or negative growth. From the first COVID-19 induced lock-down in March 2020 through to the easing of restrictions in October 2020, the median dwelling value declined by 4.17 per cent. This was due to a lack of buyer confidence in the first few months and the inability to conduct in-person inspections during the two lock-downs. These two factors resulted in sellers holding off on listing their properties and buyers waiting to see if prices would drop. As a result, there were significantly fewer transactions during this six month period and much lower auction numbers. However, following the easing of restrictions in October 2020 after the second lock- down, the market started to gain momentum, with new listings increasing markedly, and auction clearance rates improving. This continued through the later part of 2020, and the first quarter of 2021 has seen strong buyer demand for property leading to higher than expected growth rates to the point that median dwelling values in Melbourne have now equaled the March 2020 peak. In many cases, more premium streets and locations have exceeded the peak. With recent sales exceeding price expectations by 5-10 per cent, we expect 2021 to be a booming year for the Melbourne property market and a difficult one for buyers to navigate. The office and industrial sectors also boomed in the year prior to March 2020, but there was a pause in activity in both markets during the two lock-downs. The industrial market is well placed to return solid growth in future years on the back of extensive demand in logistics, transport and warehousing to meet the demands of a growing population, plus many trade based businesses will seek to own their own property over renting due to low interest rates and strong confidence in the construction and ancillary services sector. And with online spending jumping from 10 to 20 per cent of our retail spend, many warehouses will be sought to deal with this demand. 3 Melbourne Market Update
FROM THE DIRECTORS (cont.) The office market retains strong fundamentals, however the sector has a longer arc due to long leases being in place and lack of available data. There will be a trend for a significant proportion of professionals to continue working from home in the post-pandemic period and it is yet to be seen how this will impact office values and vacancy rates. However, in common with the rest of the country, the retail asset market has declined markedly in recent years and has suffered more strongly than any other sector since the outbreak of COVID-19. According to City of Melbourne data, CBD foot traffic in March 2021 is down 60 per cent, whereas Sydney and Brisbane are only down 30 per cent. Suburban retail is bucking the trend as many professionals are working from home and directing health, dining, entertainment and shopping needs to their own postcode and surrounding suburbs. This has helped to bolster an otherwise weakening sector. The Victorian economy is the second largest in Australia, accounting for about 23 per cent of the national economy. Over the past 25 years, Victoria has transitioned from an economy heavily reliant on a declining manufacturing sector to a diversified economy with significant growth in the professional, financial, insurance, health, education and service sectors. The Victorian economy was the fastest growing of all Australian states in the financial year ended June 30, 2019. The Gross State Product (GSP) of Victoria increased by 3 per cent in the financial year ended June 2019, with a total GSP of $446.1 billion per annum, up nearly $13.1 billion on the previous year. The Melbourne metro region accounted for 82 per cent of Victoria’s economic performance, with a total Gross Regional Product (GRP) growth rate of 4 per cent for the year ended June 2019 and a total GRP of $369 billion, up $18 billion on the previous year. The City of Melbourne local government area accounted for a significant 29.5 per cent of the metro area’s GRP, with an annual growth rate of 4 per cent and a total GRP of $109.2 billion, up nearly $8.9 billion on the previous year. The COVID-19 pandemic and subsequent lock-down resulted in a significant increase in the unemployment rate in Victoria. In January 2020, unemployment in Victoria stood at 5.3 per cent, an increase on the 4.6 per cent rate recorded a year previously. The rate increased significantly in the space of just seven months to stand at 6.8 per cent in July 2020. However, the economy has rebounded quicker than expected and the unemployment rate has dropped back to 5.6 per cent in February 2021. 5 Melbourne Market Update
FROM THE DIRECTORS (cont.)
While the COVID-19 induced economic recession and two subsequent lock-downs
have caused economic and social stress, Melbourne’s property market remains in
strong health overall. Thanks to the combination of massive infrastructure spending,
low interest rates, historically strong property growth rates, returning market
sentiment following the easing of restrictions and the second largest state and city
economy in Australia, Melbourne’s property market has recovered quickly from the
lockdowns and some commentators are predicting price growth of up to 17 per cent
for 2021. For long term investors, Melbourne continues to be a stable option.
Tal Eloss
Director
1Group Property Advisory
Julian Muldoon
Director
1Group Property Advisory
7 Melbourne Market Update
KEY STATS KEY POINTS
1. Melbourne has historically strong housing 5. The total value of the VIC State Demand
and unit markets, with strong residuals, was $121.2 billion in March 2020. The total
2019/20 2018/29 Change the second highest median prices in the value of the VIC State Demand contracted
country $177 million during the first quarter,
VIC Gross State Product 3% 3.4% -0.4% whereas NSW experienced a more
2. The property markets have bounced back
(growth rate) (Jun 30, 2019) (Jun 30, 2018) strongly from the COVID-19 induced
significant $1.1 billion decline.
recession and two subsequent lock-
VIC Gross State Product $446.1b $433b +$13.1b downs, with median dwellings growing 6. The Gross State Product (GSP) of
Victoria increased by 3 per cent in the
(total value) (Jun 30, 2019) (Jun 30, 2018) 5.9% for the twelve months to March 2021
financial year ended June 2019, with a
to reach $736,478 .
total GSP of $446.1 billion per annum, up
Melbourne Metro Gross 4% 4.3% -0.3% $13.1 billion on the previous year.
3. Melbourne experienced a population
Regional Product (growth rate) (Jun 30, 2019) (Jun 30, 2018) growth of 1.97 per cent in the year to
December 2019. The population of the 7. The Melbourne metro area had a Gross
Melbourne Metro Gross $369b $351b +$18b Melbourne metro area has now surpassed Regional Product (GRP) growth rate of 4
Sydney by 42,000 people, making it per cent for the year ended June 2019,
Regional Product (total value) (Jun 30, 2019) (Jun 30, 2018) with a total GRP of $369 billion, up $18
Australia’s most populated city.
billion on the previous year. The City of
City of Melbourne Gross 4% 4.3% -0.3% 4. The VIC State Final Demand experienced
Melbourne local government area
contributed almost 30 per cent of the GRP
Regional Product (growth rate) (Jun 30, 2019) (Jun 30, 2018) a -0.1 per cent contraction in the March of the metro area, with a growth rate of 4
2020 quarter due to the economic impacts per cent, and a total GRP of $109.2
City of Melbourne Gross $109.2b $100.3b +$8.9b of the bushfires and the early effects of billion.
the COVID-19 pandemic induced
Regional Product (total value) (Jun 30, 2019) (Jun 30, 2019) economic recession.
Melbourne Population 4,968,000 4,870,000 +1.97%
VIC Unemployment 5.6% (Feb 2021) 5.3% (Feb 2020) +0.3%
VIC State Final Demand (total $121.2b $120.1b +$1.1b
value) (Mar 2020) (Mar 2019)
VIC State Final Demand -0.1% 0.1% -0.2%
(percentage change) (March 2020) (March 2020)
Sources: ABS, SGS Economics and Planning, Vic State Treasury, populationstat.com,
Economy.ID.com.au
9 Melbourne Market Update 10
MAJOR PROJECTS MAJOR PROJECTS
2. North East Link Motorway. 5. West Gate Tunnel.
The Victorian State Government has a $112.6 • Will include construction of three transport
billion pipeline of projects under the Big Build super hubs at Clayton, Broadmeadows • Approximate cost: $15.8 billion. • Cost: $6.8 billion.
Victoria plan. and Sunshine. • Early works are now underway on • To be a 5 kilometre toll road linking the
what will be the biggest road transport West Gate Freeway at Yarraville with
The pipeline of infrastructure investments • Construction is planned to commence in project in Victoria’s history. the Port of Melbourne and CityLink at
includes: 2022 and will take 25 years to complete. Docklands.
• The North East Link will be a 26
kilometre motorway which will connect • Includes the construction of twin
1. Suburban Rail Loop.
the M80 Ring Road and the Eastern tunnels under the Yarra River. Each
Freeway. tunnel will have three lanes. The
• Approximate cost: $50 billion. outbound tunnel will be 4 kilometres
• Will include the construction of 6 long and the inbound tunnel will be 2.8
kilometres of twin tunnels. kilometres long.
• Proposed 90 kilometre orbital rail line
designed to link every major Melbourne • Construction will include the first • Project will also include a new bridge
railway line from Frankston to Werribee dedicated busway in Melbourne. over the Maribyrnong River, and an
via the airport.
additional four lanes on the West Gate
Bridge.
3. Metro Tunnel. • Construction is due to be completed by
2023.
• Total Cost: $11 billion.
• Construction of 9 kilometres of twin
tunnels from North Melbourne through
to South Yarra.
• Includes the construction of five new
underground stations.
• Construction started in 2016 and will
be completed in 2025.
4. Level Crossing Removal Project.
• Total Cost: $6.9 billion.
• Involves the removal of 75 level
crossings across Melbourne.
• Also includes construction of 21 new
stations.
• By the end of 2019, 38 level crossings
had been removed and five new
stations were already built.
• The whole project is due to be
completed by 2025.
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
11 Melbourne Market Update Melbourne Market Update 12
MAJOR PROJECTS MAJOR PROJECTS
6. Melbourne Airport Rail Link • The Federal Government has 9. Suburban Roads Upgrade Program. 13. Cranbourne Line Upgrade.
committed $2 billion towards the • Cost: $2.2 billion. • Cost: $1 billion.
• Cost: approximately $5 billion. project.
• The proposed link is currently due to • Work is underway to upgrade 12 roads • Removal of 17 level crossings.
• Detailed planning work to determine across the Northern and South-Eastern
commence construction in 2022 and the best route is currently underway. • Duplicating of 8 kilometres of single
will take up to nine years to complete. suburbs.
track.
• Will involve construction of a 27 8. High Capacity Metro Trains • Due to be delivered by 2025.
• Construction of a brand new station at
kilometre line from Tullamarine Airport Mernda Park.
to the CBD via Sunshine. • Cost: $2.3 billion. 10. Sunbury Line upgrade.
• Purchase of 65 new generation trains • Currently underway and due to be
• Cost: $2.1 billion. completed by 2023.
7. Fast Rail to Geelong suitable for operating through the
Metro Tunnel. • Work is underway to upgrade the line
• Cost: approximately $4 billion. including lengthening station platforms 14. Hurstbridge Line Upgrade.
• Due to begin operating on the and upgrading power supply to enable
• Proposed construction of a fast rail link Cranbourne and Pakenham lines in • Cost: $530 million.
from Melbourne CBD to Geelong the new High Capacity Metro Trains to
2020. operate on the line.
designed to reduce travel times • Work has started and will include 4.5
between Melbourne and Geelong to just • Platforms will be extended at 10 kilometres of new track, including the
over 30 minutes. stations. duplication of 3 kilometres of track
between Greensborough and
Montmorency and the duplication of
11. Western Roads upgrade program. 1.5km of track between Diamond Creek
• Cost: $1.8 billion. and Wattle Glen.
• Upgrading of eight priority roads across • A new station will also be constructed at
Melbourne’s Western suburbs. Greensborough.
• The project includes a 20 year 15. M80 Ring Road Upgrade.
maintenance contract.
• Cost: $518 million.
12. Monash Freeway upgrade. • Work is underway and will add new
• Cost: $1.4 billion, jointly funded by the lanes each way and plus upgrades to
Federal Government and the Victorian off and on-ramps.
Government. • A smart freeway system will also be
• Construction has now started on the installed.
addition of 36 kilometres of new lanes • Work is due to be completed by early
on both the Monash and Princess 2023.
Freeways.
• Will include the installation of smart on-
road technology to better manage traffic
flows.
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
13 Melbourne Market Update Melbourne Market Update 14
MAJOR PROJECTS MAJOR PROJECTS
16. Mordialloc Freeway. 17. Yan Yean Road upgrade. 18. Hall Road & Western Port Highway 21. O’Herns Road Upgrade.
upgrade.
• Cost: $375 million. • Cost: $227 million. • Cost: $81 million.
• Cost: $223.3 million.
• Construction started in October 2019 • Stage one is complete. • Stage one is complete.
and will be a 9 kilometre long freeway • Involves upgrade to 5.2 kilometres of
providing a link between the Mornington • Stage two will involve the widening of road, including widening the road to two • Stage two involves duplicating the
Peninsula Freeway and the Dingley the road to two lanes in each direction lanes in each direction. road between the Hume Freeway
Bypass. between Kurrak and Bridge Inn Roads and Redding Rise and construction
plus upgrades to various intersections, of a new interchange with the Hume
including installation of traffic lights at 19. Plenty Road Upgrade. Freeway.
some and roundabouts at others. • Cost: $178.2 million. • Due to be completed by mid-2021.
• Stage one is complete.
22. Narre Warren North Road Upgrade.
• Stage two is underway and will involve
widening the road to four or six lanes in • Cost: $38.3 million.
each direction.
• Involves construction of an extra
• Due to be completed in mid-2021. lane between Fox Road and
Bellgrave-Hallam Road.
20. Western Rail Plan.
23. South Road Upgrade.
• Cost: $100 million.
• Cost: $30 million.
• Work is currently underway to develop
a plan to enable regional Victoria to • Will involve upgrading of various
grow and looks at: intersections.
o Increasing capacity on the line
between Sunshine and the CBD 24. St Kilda Road Bike Lanes.
to cater for faster and more • Cost: $27 million.
frequent regional trains;
• Upgrading of bike lanes along St
o High speed rail to Ballarat and Kilda Road.
Geelong;
o Construction of two new lines
through to the growth areas of
Melton and Wyndham Vale.
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
15 Melbourne Market Update Melbourne Market Update 16
MAJOR PROJECTS
There are also a number of significant new space, 184 apartments, 294 hotel
building developments in the pipeline, rooms and 950 sqm retail space when
including: completed in late 2020.
• Developer: Cbus Property.
1. Melbourne Square.
• Cost: $2.8 billion. 5. The Malt District, Richmond.
• The first stage involved construction of • Cost: $1 billion.
two residential towers of 54 and 69-
storeys comprising 1,048 apartments • Construction of a 200-unit apartment
and was completed in August 2020. building, two office towers and a
When the entire development is hotel on a 1.4 hectare site.
completed it will comprise 2,600 • Developer: Caydon.
apartments across six towers, a hotel
and serviced apartment tower, and a
commercial office building. 6. West Side Place, 250 Spencer Street.
• Developer: OSK Property. • Cost: $1 billion.
• Construction of a 81-storey tower
2. Southbank by Beulah. and a 64-storey tower. The
completed development will
• Cost: $2 billion. comprise 1,376 apartments and 257
• Planned construction of two towers. The luxury hotel suites operating as the
taller tower will be Australia’s tallest Ritz-Carlton. The first stage is due to
building. When completed the be completed in 2021.
development will comprise 27,000 sqm • Developer: Far East Consortium.
of office space, 21,000 sqm of retail,
9,500 sqm of food and drinks premises,
7. 435 Bourke Street.
a 202 room hotel and 789 apartments.
• Developer: Beulah International. • Cost: $1 billion.
• Planned construction of a 49-storey
3. 555 Collins Street. office tower with 59,000 sqm office
space.
• Cost: $1.6 billion.
• Developer: Cbus Property.
• Planned construction of an 80,000 sqm
office tower to be built in two stages.
The first stage will comprise 35 levels of 8. Queens Place, 350 Queen Street.
technology-enabled office space. • Cost: $1 billion.
• Developer: Charter Hall. • Construction of two 79-storey
residential towers with a total of
4. Collins Arch. 1,800 apartments.
• Cost: $1.25 billion. • Developer: 3L Alliance.
• Construction of two 44-storey towers,
which will comprise 49,500 sqm office
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
17 Melbourne Market Update Melbourne Market Update 18
MAJOR PROJECTS
9. Australia 108, 70 Southbank 13. Munro Development.
Boulevard.
• Cost: $450 million.
• Cost: $900 million.
• Construction of two apartment
• Construction of a 99-storey towers of 38-storeys and 10-
apartment tower with 1,105 storeys with a total of 320
apartments. Will be Australia’s residential units and an 80-room
tallest building when completed in hotel.
late 2020.
• Will include the delivery of $70
• Developer: World Class Global. million in facilities including a
120-place childcare centre, 56
10. 405 Bourke Street. affordable housing units, a
community centre, and 500
• Cost: $800 million. basement car parks for Queen
Victoria Market customers.
• Construction of a 39-storey office
tower with 66,000 sqm of A-grade • Developer: PDG Corporation.
office space. To be occupied by
NAB and due to be completed in 14. Aspire Tower, 299 King Street.
early 2021.
• Cost: $440 million.
• Developer: Brookfield and ISPT.
• Construction of a 65-storey high
11. 130 Lonsdale Street. rise residential apartment
complex with 594 apartments.
• Cost: $750 million.
• Developer ICD Property Group.
• Construction of a 35-storey
Premium Grade office tower with a 15. Queen Victoria Market Precinct
net lettable area of 60,000 sqm. Renewal.
Due to be completed before the end
of 2020. • Cost: $250 million.
• Developer: Charter Hall. • A five year program by the City of
Melbourne to refurbish the Queen
12. 380 Melbourne. Victoria Market Precinct to
restore the market’s heritage
• Cost: $500 million. while delivering modern facilities.
• Construction of two towers of 52-
storeys and 68-storeys with 700
apartments and a 252 room Voco
branded hotel. Due to be completed
in late 2020.
• Developer: Brady Group.
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
Sources: https://bigbuild.vic.gov.au/projects; www.urbandeveloper.com.au
19 Melbourne Market Update 6RESIDENTIAL RESIDENTIAL
Prior to the COVID-19 pandemic hitting Australia in March 2020, the Melbourne Following a four year long property boom, the Melbourne residential market peaked in
residential market was setting monthly records as it recovered from a two year slump in November 2017 with a median dwelling price of $720,417. However, by March 2019,
real estate values. At the start of 2020, market commentators were expecting values in median dwelling prices had declined 13.3 per cent to $624,425, which was the worst
Melbourne’s residential market to continue to rise. For example, NAB’s Australian peak to trough fall in dwelling values recorded for 40 years. The rest of 2019 saw the
Residential Survey was tipping that Melbourne’s houses and units would both rise by market in recovery mode, with median dwelling prices improving to $683,529 at the end
7.4 per cent in 2020. However, the COVID-19 pandemic and the two subsequent lock- of June 2020.
downs that Melbourne experienced effectively ended any chance of a rise of this
magnitude occurring during 2020. As a result of the two lock-downs, the median The period of negative growth from 2017 to 2019 was caused by several factors, of
dwelling price in Melbourne grew by just 0.04 per cent from $681,925 at the end of which tighter lending criteria was the key factor. The banking regulator, Australian
2019 to reach $682,197 by the end of 2020. Prudential Regulation Authority (APRA) introduced rules and regulations to reign in
investment loans, including a caps on the number of interest only loans that could be
approved to just 30 per cent of a bank’s new lending. Also, ASIC began to enforce
responsible lending laws and how loan applications could be assessed. This forced
banks to tighten lending criteria. This also reduced the amount many could borrow by
up to 20 per cent; the flow on effect being that buyers had less money to spend on their
purchase.
Other factors to cause the decline were stricter enforcement of foreign investment rules
which resulted in foreign investors pulling back from the market; and a surge in housing
supply and building approvals.
Due to Melbourne’s fast expanding population, the surge in housing supply and
building approvals had less impact than in the Sydney market. New building approvals
for Melbourne have increased year on year, with 61,145 new dwellings approved in the
twelve months to June 2020.
As with Sydney, the Melbourne market experienced a sustained period of negative
growth following from the peak of the market in November 2017 through to March
2019. This was followed by a strong recovery throughout the rest of 2019 and the first
quarter of 2020, with the median dwelling price growing by 12 per cent to $695,299 by
March 2020. The quick recovery from the March 2019 low was due to changes by
APRA to credit rules which saw borrowing activity improve, record low interest rates
and more certainty in the market following the 2019 Federal election.
Thanks to effects of the two COVID-19 lockdowns on the real estate market, values
declined in the seven months from March to October 2020, with the median dwelling
value declining by 4.17 per cent to $666,240.
21 Melbourne Market Update Melbourne Market Update 22RESIDENTIAL Melbourne’s housing market saw median house prices grow by 12.5 per cent to $819,611 in the twelve months to March 2020, before the effects of the COVID-19 pandemic saw an easing in values of 3.54 per cent to $790,543 by the end of October 2020. Melbourne’s apartment market also recorded strong growth in 2019 and the first quarter of 2020, with an average median apartment value growing by 11 per cent to $589,042 by March 2020. This was followed by a 3.5 per cent decline to $568,056 by the end of October 2020. However, since the end of October, Melbourne’s property markets have bounced back strongly, with very strong buyer demand resulting in property prices growing quickly again. By the end of March 2021, dwelling values in Melbourne had surpassed the previous peak of a year ago. Melbourne’s median dwelling price has grown by 6.7 per cent since the end of October to reach $736,478. Median house values have grown by 4.92 per cent since the end of October 2020 to reach $829,509, while median unit values have grown have grown by 2.6 per cent since the end of October 2020 to reach $582,833 by March 2021. The ANZ has now predicted that Melbourne property prices will grow by 16 per cent by the end of 2021, showing just how quickly the market has turned around from the lows of October 2020. The strongest performing suburbs for houses in the Melbourne metro area in the twelve months ended June 2020 were Box Hill South with 39.7 per cent growth rate, followed by Caulfield North (26.9 per cent), Hughesdale (25.3 per cent), Mont Albert North (23.3 per cent) and Armadale (22.5 per cent). The weakest performing suburb for houses was Lower Plenty with minus 15.3 per cent growth, followed by St Kilda (-12.2 per cent), Carrum (-10.8 per cent) and Warrandyte (-10.8 per cent). The strongest performing suburb for apartments was West Melbourne with 33.9 per cent growth rate, followed by Fairfield (33.1 per cent) and Balwyn North (29.3 per cent). The weakest performing suburb for apartments was Caulfield North with minus 11.8 per cent, followed by Black Rock (-8.3 per cent) and Werribee (-7.9 per cent). Despite significant new dwelling supply, rental vacancy rates across the Melbourne metro area have remained low in the last few years, with very low vacancy rates of around 2 per cent during the second half of 2019. However, rates have since increased from 1.9 per cent in February 2020 to 4.5 per cent in February 2021 due to the effects of COVID-19. 23 Melbourne Market Update
RESIDENTIAL RESIDENTIAL
Some inner suburbs have been hit particularly hard since March 2020, with the The reduction in supply levels actually helped protect housing values during the lock-
Melbourne CBD experiencing vacancy rates of 8.1 per cent by February 2021, downs. Market values were also cushioned by record low interest rates and
compared with just 2.8 per cent in February 2020. These figures are a result of a major mortgage relief measures, both of which helped to reduce the likelihood of significant
exodus of tenants – mostly international students and those on short term visas – forced mortgagee sales.
following the closure of Australia’s border after the outbreak of COVID-19. The short-
term rental market has also suffered significant vacancy rates due to the border Auction clearance rates also show the effect of COVID-19 on the Melbourne
closures and the resulting lack of tourists and others on short term visas. As a result, residential market. During February, just prior to the first COVID-19 lock-down in
many landlords listed these properties for long term rental, further exacerbating the Melbourne, the average auction clearance rate was 72 per cent. Clearance rates
supply of rental accommodation. dropped to just 30 per cent in April during the height of the first lockdown, before
recovering slightly to reach 57 per cent for June. The July and August clearance
Weekly median rental rates across the Melbourne metro area were stable throughout rates remained above 50 per cent despite the second lock-down. However, the
2019. Weekly median rates for a house were $545 in January 2020, a decline of just $1 introduction of Level 4 lock-down rules in August, preventing real estate inspections,
from January 2019. However, prices have since declined markedly, with median had a dramatic effect on clearance rates, with the first two weeks of September
weekly rates down 5.87 per cent to $513 per week in February 2021. showing the effect of these rules. Normally, there would be around 1,000 auctions
per week during spring. However, there were just 16 auctions with a clearance rate
There was a significant reduction of new listings during the lockdowns. The number of of 33 per cent for September 5 and just 10 auctions with clearance rates of 0 per cent
new listings in the four weeks to September 6 fell dramatically by 76.1 per cent for September 12. Following the easing of restrictions in late September, clearance
compared with the same period last year. Since then, the number of new listings and rates have improved significantly, with an average clearance rate of 63 per cent in
total stock on market has increased substantially, with 17,228 new listings and 38,211 October. Since October, auction clearance rates have been consistently over 70 per
total listings. Despite the increase, such is the demand for property across the cent with some weeks in February and March 2021 recording clearance rates of over
Melbourne metro area that new listings are quickly sold, with the CoreLogic reporting 80 per cent as the market heats up.
that the average time on market for any property is just 30 days.
The reduction in supply levels actually helped protect housing values during the lock-
downs. Market values were also cushioned by record low interest rates and mortgage
relief measures, both of which helped to reduce the likelihood of significant forced
mortgagee sales.
Auction clearance rates Melbourne 2019/2020 (source:Domain)
25 Melbourne Market Update Melbourne Market Update 26RESIDENTIAL The fundamentals for the Melbourne residential market remain strong, although the second wave of COVID-19 infections and subsequent Level 4 lock-down resulted in a decline in market values of 4.17 per cent on the March peak by the end of 2020. In mid-November, the Victorian State Government announced measures in the State Budget to stimulate the property market, including a 50 per cent reduction in stamp duty on new dwellings and a 25 per cent reduction in stamp duty on established dwellings. These government initiatives, in combination with record low interest rates, mortgage relief measures, pent up demand from buyers, the Federal Government’s home builder grant and an easing of the previously strict lending criteria, have ensured that Melbourne’s property markets have rebounded strongly from the lockdowns and are providing perfect conditions for strong growth in 2021. 27 Melbourne Market Update
KEY STATS KEY POINTS
Metric 2021 2020 Change 1. Median house prices increased by 6. Melbourne’s rental vacancy rates
1.2% to $829,509 compared to are up by 2.6% compared to
Median Dwelling Prices $736,478 $695,299 (March +5.9% March 2020. February 2020.
(March 2021) 2020)
2. Strongest performing suburb for 7. Some areas have been harder hit by
house prices was Box Hill South, the COVID-19 pandemic than
followed by Caulfield North, others. Melbourne’s inner ring
Median House Prices $829,509 $819,611 +1.2% Hughesdale, Mont Albert North and suburbs are seeing higher rental
(March 2021) (March 2021) Armadale. vacancies, while many outer
suburbs retain tight vacancy rates of
3. Weakest performing suburb for under 2 %.
Median Apartment $582,833 $589,042 -1.5% houses was Lower Plenty, followed
Prices (March 2021) (March 2020) by St Kilda, Carrum and 8. Median weekly rental prices were
Warrandyte. stable for both houses and units
throughout 2019. Weekly median
4. Strongest performing suburb for rates for a house were $545 in
Median Weekly Rental $513 (Feb 2021)) $545 (Feb 2020) -5.87% apartments was West Melbourne, February 2020, an increase of $1 on
– houses followed by Fairfield and Balwyn February 2019. However, prices
North. have declined markedly over the
past year, with median weekly rates
5. Weakest performing suburb for down 5.87% to $513 per week in
Median Weekly Rental $388 (Feb 2021) $424 (Feb 2020) -8.5% February 2021.
apartments was Caulfield North,
– Units followed by Black Rock and
Werribee.
Vacancy Rate 4.5% (Feb 2021) 1.9% (Feb 2020) +2.6%
New Dwelling 61,145 (Jul 2020) 59,149 (Jul 2019) +3.37%
Approvals
Mortgage Arrears 1.85% (May 2020) 1.4% (May 2019) +0.45%
(delinquency rate)
Sources: CoreLogic | Domain | REIV | SQM Research | ABC News
29 Melbourne Market Update Melbourne Market Update 30COMMERCIAL MARKET Melbourne’s main office precincts are the CBD (including Docklands) and the Melbourne fringe around Southbank and along St Kilda Road. There are a number of small office precincts in the metro area, including Hawthorn, Box Hill, South Yarra and Richmond. The effects of the COVID-19 pandemic can be seen in sales across the metro office market with $3.6 billion in sales recorded in the year to August 2020, down more than $1.1 billion on the previous twelve months. The CBD accounts for 60 per cent of the total Melbourne office market, recording $2.2 billion of the total sales, down $900 billion on the previous twelve months. The most significant sale in the twelve months to July 2020 was the sale of a half share of the Rialto Tower at 525 Collins Street for $644 million to Singapore based GIC Pty Ltd and the ASX listed DEXUS Property Group. At the start of 2020, the Melbourne CBD vacancy rate was the tightest in the country, at 3.2 per cent, a slight decline on the 3.3 per cent recorded in July 2019. However, vacancy rates have increased in the past six months, partly due to the impacts of COVID-19, but also due to new office supply entering the market. The Melbourne market has so far experienced greater impacts from COVID-19, with the second lock- down ensuring that most office workers continue to work from home. This has resulted in many companies reconsidering their space needs. Consequently there have been a number of tenant contractions and an increase in the amount of sublease space. The Melbourne CBD now has the second tightest office vacancy rates of any CBD in the country. The Property Council figures for July 2020 show that Melbourne CBD has office vacancy rates of 5.8 per cent, which represents a 2.5 per cent increase on January. These rates remain low by historical standards, but JLL is forecasting vacancy rates to reach 12 per cent in 2021 as further new office buildings are completed and there are further tenant contractions. A total of 270,000 sqm of newly completed office space has been added to the Melbourne CBD in the twelve months to August 2020, bringing the total amount of space in to 4,879,800 sqm. The last few months has seen the completion of three major new office developments: the Victoria Police Centre at 311 Spencer Street (64,000 sqm), Lendlease Two Melbourne Quarter at 697 Collins Street (46,350 sqm) and Dexus 80 Collins Street (42,960 sqm). A total of 550,000 sqm in new office buildings will be completed in the Melbourne CBD between 2020 and 2024. Around 87 per cent of the planned space is pre-committed. Despite the challenges of the COVID- 19 pandemic, there continues to be strong demand for office space in the CBD, with few options for prospective tenants, and as a result new developments are in demand. The Melbourne office market retains strong fundamentals, with low vacancy rates, low interest rates and strong capital growth appealing to institutional investors. However, COVID-19 has seen many professionals required to work from home, resulting in many companies rethinking their needs for office space. Remote working is likely to remain a long term trend for a significant proportion of professionals, and the effects this will have on office vacancy rates and values is yet to be seen. 31 Melbourne Market Update
COMMERCIAL MARKET
KEY STATS
2019/2020 2018/2019 Change
Melbourne Metro $3.6 billion/76 sales $4.7 billion/92 sales -$1.1 billion/-16
Office Sales (Aug 2020) (Aug 2019) sales
Melbourne CBD Sales $2.2 billion/16 sales $3.1 billion/30 sales -$900 million/-
(Jun 2020) (Jun 2020) 14 sales
Melbourne CBD Overall 5.8% (Jul 2020) 3.3% (Jul 2019) +2.5%
Vacancy Rate 3.2% (Jan 2020) 3.2%(Jan 2019) -0%
Premium Grade Vacancy 1.7% (Jan 2020) 4.1% (Jul 2019) -3.4%
A Grade Vacancy 2.1% (Jan 2020) 1.5% (Jul 2019) +0.6%
B Grade Vacancy 6.4% (Jan 2020) 7.2% (Jul 2019) +0.8%
Total Stock 4,879,800 sqm 4,608,924 sqm +270,876 sqm
Yields (prime) 4.5% 4.7% -20 basis points
(-0.2%)
Yields (secondary) 5.0% 5.3% -20 basis points
(-0.3%)
\Net Face Rents (prime) $784 per sqm $746 per sqm +5.09%
Net Face Rents $509 per sqm $479 per sqm +6.26%
(secondary)
Incentive Level (prime) 25% 26% -1%
Incentive Level 27% 26% +1%
(secondary)
33 Melbourne Market UpdateCOMMERCIAL MARKET
TOP 10 OFFICE SALES MELBOURNE METRO AREA
(July 2019-July 2020)
# Building Percent Sale Price Sale Date Buyers
Name/Address Purchased
1 Rialto, 525 Collins 50% $644m 06-04-20 GIC Pte Ltd (45%) and
Street, Melbourne DEXUS Property Group
(5%)
2 452 Flinders Street, 100% $450m 10-09-20 Deka Immobilien
Melbourne Global GMBH
3 222 Exhibition 50% $205.7m 30-07-20 GIC Pte Ltd
Street, Melbourne
4 346-350 Queen 100% $135m 19-06-20 TE2 Skyhigh Pty Ltd
Street, Melbourne
5 RMIT, Levels 2-15, 100% $130m 03-08-20 Futuro Capital Pty Ltd
235-251 Bourke
Street, Melbourne
6 412 St Kilda Road, 100% $107.1m 12-11-19 ACME Co No 4 Pty Ltd
Melbourne
7 658 Church Street, 100% $92.5m 18-10-19 Carolbridge Pty Ltd
Cremorne
8 424 Illoura, 424 St 100% $70m 16-09-19 Mars Burwood Pty LTd
Kilda Road,
Melbourne
9 Telstra Centre, 242 15% $63.6m 03-11-19 Charter Hall Long
Exhibition Street, WALE REIT
Melbourne
10 Flight Centre House, 100% $62.2m 11-05-19 Shakespeare Property
436 St Kilda Road, Group Pty Ltd
Melbourne
35 Melbourne Market UpdateKEY POINTS
1. Total CBD Stock of 4,879,800 sqm, 4. Overall vacancy in January 2020
an increase of 270,876 sqm on the was 3.2%, a slight decrease from
previous 12 months. Just over the 3.3% recorded in July 2019.
550,000 sqm in new office space However, vacancy rates rose to
will be released to the market 5.8% by July 2020, partly due to
between 2020 and 2024, with 87 impacts of COVID-19 and partly
per cent of the space pre- due to new stock. JLL is forecasting
committed. that vacancy will rise to 12% in
2021.
2. Total sales value of all Melbourne’s
office precincts combined was $3.6 5. Net face rents increased slightly
billion from 76 sales in year to and prime incentives decreased
August 2020 compared with $4.7 slightly in twelve months to
billion from 92 sales in year to December 2019.
August 2019.
3. The Melbourne CBD accounts for
60 per cent of all office sales of the
total Melbourne market, with $2.2
billion from 16 sales in the year to
August 2020, compared with $3.1
billion from 30 sales in the year to
August 2019.
Sources: CoreLogic | Property Council | JLL | Colliers International | Savills | Knight Frank
Melbourne Market Update 38INDUSTRIAL MARKET
The Melbourne industrial markets have boomed in recent years, thanks to strong
demand for space in the logistics, transport and warehousing sectors, which have
grown strongly to service the needs of Melbourne and Victoria’s expanding population.
Sales in the Melbourne industrial market were strong for the year to June 2020, with
investment activity of $1.7 billion, compared with $2.6 billion in the year to June 2019.
While this was down thanks to a reduction of activity in the first half of 2020 due to the
COVID-19 pandemic, the total sales activity was comparable to 2017/18 and 2016/17
financial years.
Investment volume in the year to June 2020 was strongest in the south-east region,
with $695 million of assets sold, representing 32 per cent of all sales activity. Unlisted
funds and syndicates accounted for 39 per cent of all sales activity, purchasing $584
million in assets.
The largest sales were:
• 41-59 Colemans Road, Dandenong South, which was purchased by Charter Hall
Prime Industrial Fund and Allianz Real Estate for $143.6 million
• 51-95 Greens Road, Dandenong South, which was purchased by Charter Hall
Prime Industrial Fund for $100 million.
The COVID-19 pandemic has accelerated a trend towards E-commerce and fueled
strong leasing demand in the logistics, warehousing and transport sectors. Higher take
up rates for on-line shopping will create further transport and logistics demand within
the industrial sector. JB HiFi and General Pants are two major brands with a strong
online retail presence which have recently taken up space in Melbourne’s industrial
markets.
Total leasing volume, including pre-comittments increased to 832,573 sqm in the first
half of 2020, up from 758,534 sqm in the first half of 2019. However, despite this
growth in leasing demand, the COVID-19 pandemic has resulted in an increase in
industrial vacancy to 19 per cent. COVID-19 has also impacted on speculative
developments, with many developers putting development plans on hold. Despite this,
a total of 1,478,036 sqm in industrial space is due to be completed in 2020/21.
Overall, the Melbourne industrial sector remains strong, with relatively low vacancy
rates, stable rents, strong sales activity and increasing demand from the warehousing,
transports and logistics sectors.
39 Melbourne Market UpdateKEY STATS
2020 2019 Change
Investment Capital $1.7 billion $2.6 billion -34 per cent
(Sales of Assets Over
$5 million)
Net Face Rent (per $91 psm (Q3 2020) $111 psm (Q3 -18% (-$29)
sqm) 2019)
Yield 5.25% (Q3 2020) 5.73% (Q3 2019) -0.48%
Incentive Level 17.9% (Q3 2020) 14.3% (Q3 2019) +3.3%
Land Value $419 per sqm (Q3 $393 per sqm (Q3 +6.62%
2020) 2019)
KEY POINTS
1. Net face rents have decreased by
nearly 18%.
2. Yields have tightened by 48 basis
points to 5.25%.
3. Strong leasing demand in the
transport, logistics and warehousing
sectors - particularly in the western
and northern corridors.
Sources: Colliers International | Savills | Knight Frank
Melbourne Market Update 42RETAIL MARKET In common with other capital cities, the retail sector in Melbourne faces some significant challenges including the growth of on-line retail, depressed consumer confidence, and a trend towards non-discretionary spending. The Reserve Bank and Federal Government have been providing stimulatory economic conditions to promote business and consumer sentiment across Australia, but the retail sector continues to face challenges. The retail sector as a whole across Australia faces challenges in adapting and transitioning from the old bricks and mortar economy to the new economy combining on-line retailing with bricks and mortar consumerism. The challenges faced by the retail sector have been exacerbated by the COVID-19 pandemic. Many retailers were forced to close during the first lock-down period in March and April. The subsequent Stage 4 lock-down during August and September required all non-essential retail with the exception of supermarkets, newsagents, takeaway shops and post offices to lock-down. Following the two lock-down periods, a number of retailers have since ceased trading completely, while others have moved entirely online. The sectors hardest hit by the pandemic have been the café/restaurant sector – which was required to shift to take away services only during the shutdown and are still constrained by limits to the number of customers they can serve at one time – plus the beauty services sector. The Australian Bureau of Statistics released figures showing that retail sales spiked in March due to panic buying, but for April retail turnover fell by 23 per cent month-on- month. Retail turnover had recovered to pre-pandemic levels by July, but subsequently fell by 12.5 per cent month on month in August. The retail turnover for September was similar to August and showed the effect of the Level 4 lock-down. Retail turnover can be expected to improve in the last few months of 2020 now that restrictions have been eased. Also notable was that online sales have increased significantly, with ABS statistics showing that online retail now accounts for 9.7 per cent of all retail trade, up from 6.1 per cent in June 2019. Commentators are expecting this level of online growth to be sustained post-pandemic. Given that the retail sector was already facing challenges as outlined above, it is likely to take some time for the sector to recover. However, despite the challenges, retail assets are still trading, with a total of $1.8 billion in retail assets sold in the year to June 2020, up 13.5 per cent year on year. Sub- Regional Centres and Neighbourhood Shopping Centres are the most popular retail assets with investors in Victoria, due to their affordability, proximity to population centres and exposure to non-discretionary retail, accounting for 52 per cent of all retail assets sold. However, retail asset transactions are down overall year on year. 43 Melbourne Market Update
KEY STATS
2020 2019 Change
CBD – Average Yield 4.70% 4.70% 0
CBD – Average Gross Face rent $12,825 $12,253 +$572
CBD – Average Incentives 9.50% 9.40% +0.1%
Regional Centres – average yields 4.8% 4.75% +0.25%
Regional Centres – average gross face rent $1,950 $1,950 0
Regional Centres – Average Incentives 14.0% 14.0% 0
Neighbourhood Centres – average yields 6.30% 6.25% +0.05%
Neighbourhood Centres – Average gross $950 $1,000 -$50
face rent
Neighbourhood Centres – average incentvies 17.0% 15.5% +1.5%
Sub-Regional Centres – average yields 6.30% 6.18% +0.12%
Sub- Regional Centres – average gross face $1,200 $1,275 -$75
rent
Sub-Regional Centres – average incentives 19.0% 17.5% +1.5%
Large Format Retail – average yields 7.4% 7.2% +0.20%
Large Format Retail – average gross face rent $488 $492 -$4
Large Format Retail – average incentives 8.0% 8.0% 0
Average Vacancy Rates for Enclosed Centres 2.61% 2.5% +0.11%
Sources: Savills | Colliers
Melbourne Market Update 46KEY POINTS
1. According to ABS Online Retail 4. Retail sales in Victoria were down
Turnover report for June 2020, 1.1% in year to June 2020, which is
online retail accounted for 9.7% of below the five year average of
total retail trade. 2.7%.
2. There was a total of $1.8 billion in 5. Regional centres are experiencing
retail assets sold in Victoria in the tough trading conditions due to
year to June 2020, up 13.5% year greater exposure to discretionary
on year. Sub-Regional Centres retailing, such as fashion and
($398 million/33% of retail asset department stores and are more
transactions) and Neighbourhood exposed to footprint rationalization
Centres ($233 million/19% of retail by the larger chain stores – for
asset transactions) were the most example Myer and David Jones
popular type of retail asset in have both reduced their footprint
Victoria in 2019. across the country’s regional and
sub-regional centres.
3. Largest transaction was the sale of
David Jones’ Bourke Street Mall 6. A total of 408,000 sqm of retail
store for $121 million in July 2020. space is forecast to be delivered in
This was followed by Brimbank 2020.
Shopping Centre, 72 Station Road,
Deer Park, which sold for $153
million in January 2020;
Craigeburn Junction, 440
Craigeburn Road, Craigeburn
Junction which sold for $100 million
in July 2019; and Village Walk, 493
Toorak Road, Toorak, which sold
for $80 million in July 2019.
Sources: Savills | Colliers | JLL
Melbourne Market Update 48MEDICAL
There were just two transactions of medical centres with a total value of $1,321,000
within the Melbourne CBD, Docklands, Melbourne Fringe, Richmond, Camberwell and
South Yarra areas in the twelve months ending in September 2020:
1. Medical Suite, Lot 4A, 517 St Kilda Road, Melbourne – sold for $835,000 in
October 2019.
2. Melbourne City Dental, Unit GF08, 9 Village Street, Docklands – sold for
$486,000 in November 2019 to BTRSSA Pty Ltd.
This compares with 12 transactions with a total value of $12,607,999 in the twelve
months ending September 2019:
1. Collins Laser Aesthetics, Unit 101, 2 Collins Street, Melbourne – sold for
$1,325,000 in September 2019 to Esar Medical Pty Ltd.
2. Melbourne Dental Wellbeing, Unit 11, 2 Collins Street, Melbourne – sold for
$1,460,000 in September 2019 to Stamas Enterprises Pty Ltd.
3. Collins Street Dental Implant Centre, Unit 202, 13-15 Collins Street, Melbourne –
sold for $470,000 in December 2018 to Jemmasuper Pty Ltd.
4. Vita Medical Centre, Lot 2, 375 King Street, Melbourne – a 50% interest sold for
$460,000 in March 2019 to Annika Developments Pty Ltd.
5. Absolute Health & Performance, Lot 15, 199 William Street, Melbourne – sold for
$5,050,000 in December 2018 to DFXYQ Pty Ltd.
6. Melbourne Specialist Suites, Lot 4B, 517 St Kilda Road, Melbourne – sold for
$870,000 in March 2019 to Long Hua Pty Ltd.
7. Action Rehab, Lot 18, 517 St Kilda Road, Melbourne – sold for $430,000 in
October 2018 to Critical Property Holdings Pty Ltd.
8. Laser Pain Clinic Australia, Lot 44, 517 St Kilda Road, Melbourne – sold for
$175,000 in April 2019.
9. Medical Suite, Lot 25, 517 St Kilda Road, Melbourne – sold for $574,999 in
November 2018 to Associated Industrial Computer Corporation Pty Ltd.
10. Medical Suite, Lot 14, 517 St Kilda Road, Melbourne – sold for $300,000 in May
2019 to K.E. Family Investments Pty Ltd.
11. Melbourne Osteopath Clinic, Lot 128, 838 Collins Street, Docklands – sold for
$473,000 in April 2019 to Lifestyle (VIC) Pty Ltd.
12. Medical Suite, Unit GF07, 7 Village Street, Docklands – sold for $1,020,000 in
March 2019.
Source: RP Data
49 Melbourne Market UpdateCO-WORKING
1. Melbourne has the highest
concentration of co-working spaces
in Australia.
2. There are 210 co-working spaces
within the Melbourne metro area, of
which 60 are located within the
Melbourne CBD.
3. Co-working spaces occupy a total of
323,127 sqm across the Melbourne
metro area.
4. Co-working spaces occupy 143,297
sqm or 3.1% of total office space in
the Melbourne CBD
5. The largest co-working/flexible office
space in Melbourne is the Asia
Pacific Serviced Offices complex at
1 Queens Road in Melbourne’s St
Kilda Road precinct with 26,000 sqm
across 15 levels.
Source: Charter Keck Cramer | Coworker.com
51 Melbourne Market UpdateP 1300 788 368 SYDNEY Report compiled by:
F 1300 788 369 MELBOURNE Brendan Wood
BRISBANE Property Research Analyst
1Group Property Advisory
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