Vacancy rates in the Melbourne CBD and Southbank have dropped below 2 per cent as students, retirees and young professionals return to the city, after peaking at over 11 per cent during height of the second Victorian lockdown in 2020, new figures from Melbourne Inner City Management (MICM) show.
The plummeting vacancy rate has swung these two key high-rise apartment markets back in favour of landlords, given 3 per cent is considered a balanced market by most residential property professionals.
MICM, which is part of prominent developer Central Equity’s group of companies, manages the largest apartment portfolio in Southbank and one of the biggest in the Melbourne CBD. It equates to “many thousands” of rental units, many of them developed and built by Central Equity.
Darren Blankfield, a director at MICM, said inner-city apartment vacancy rates had spiked during each lockdown – especially during the first two in 2020 – as traditional tenants such as workers and students vacated and the usually deep pool of international renters dried up.
But as Victoria exited its sixth lockdown in October last year and – supported by high vaccination rates – adopted a “living with COVID” approach, they began to fall, approaching a balanced market by the end of 2021.
“Towards the end of 2021 we saw extremely strong application numbers for vacant properties,” Mr Blankfield said.
“This is what we expect in a balanced market and highlights the bounce back and upward pressure on inner-city market rents.”
The low vacancy rate across the MICM portfolio is reflective of wider trends in housing markets, since the ending of strict lockdowns on the east coast.
Lack of new supply
Figures from SQM Research had the overall Melbourne vacancy rate at 3.2 per cent in January, 2.6 per cent in Sydney and just 1.3 per cent in Brisbane.
Alongside the low vacancy rates, inner-city Melbourne apartment rents have started to rise, something Mr Blankfield said would be exacerbated by a lack of new supply being completed over the coming years at a time when international migration will likely be back in full swing.
After peaking at close to 20,000 new apartment completions in 2016, this number could fall to less than 1000 by 2024 according to MICM, due in part to many developers putting projects on hold during the pandemic or scrapping them.
Though these favourable market conditions are expected to drive a new wave of projects – a point highlighted by non-bank lender Qualitas last week – the significant time lag between site acquisitions and the completion of construction means it will take many years for the pipeline to rebuild to pre-COVID-19 levels.
In February, Kent Lardner, director at housing analytics firm Suburbtrends, said the remaining pockets of high vacancy rates, especially those in inner-city areas, would vanish rapidly once international migration resumed.
“I think the inner-city unit markets will see the biggest positive market shifts,” he said.
“I would not be surprised to see rents in inner Sydney and Melbourne jumping by 15 per cent in the coming 12 months.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/melbourne-cbd-apartment-market-swings-back-in-investors-favour-20220228-p5a0ax