What's ahead for the Melbourne apartment market?
Despite more than 260 days of lockdown, the Melbourne property market performed strongly in 2020 and 2021 underpinned by low-interest rates, various Government incentives, and support measures as well as high household savings accumulated during the lockdowns.
But this strong performance was largely limited to the detached housing market, with apartments generally underperforming.
The apartment market suffered from the loss of foreign and local investors, concerns related to building defects and cladding issues and then the substantial loss of occupier demand as people wanted more space during lockdowns.
According to valuers Charter Keck Cramer there are now various cyclical and structural changes that are occurring in Melbourne which will support the next cycle of apartment projects as well as the emergence of the nascent Buy to Rent apartment sector.
These include the acceptance of living in apartments, increased detached dwelling affordability constraints, record median house to apartment price gap and the acceptance of long-term renting.
Charter Keck Kramer explains:
Demand, via population growth, will return to Melbourne from 2023 and onwards.
Moreover, the rate of growth within different age segments of the population will vary.
With that growth will come the demand for additional and diverse forms of living.
At present, supply will not be able to respond as quickly to demand which suggests that vacancies will decrease, and rents and prices will increase.
This will initiate the next cycle of the Buy to Sell apartment market and first wave of Buy to Rent apartment projects.
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CKK valuers commented:
"Whilst vacancy rates in certain sub-markets (including the inner city) increased and rents decreased, the most recent figures suggest that the rental and purchase markets are recovering.
Demand for apartments is increasing in Melbourne as a result of structural changes that were underway prior to Covid-19.
Apartment living and renting is now an accepted form of living – especially in the Millennial and Generation Z age segments which are most often priced out of the established housing market and are also making lifestyle decisions to travel and marry later in life.
Baby Boomers are another segment of the market which is prepared to downsize (or rightsize or even upsize) into an apartment and age in the suburb they have been living and close to their children and grandchildren.
As for the Melbourne apartment market moving forward, Charter Keck Kramer explains:
The Build to Sell apartment market continues to evolve and mature.
The typical purchaser and occupier is now more educated and aware of what they require in an apartment.
Owner occupier apartments are the product type that will best be able to respond to the needs of these occupiers.
This product type is very different to the historical investor grade apartment product that has been delivered over the last decade across many projects in Melbourne.