Like its sister-market Sydney’s CBD, the Melbourne City apartment market while perhaps looking somewhat different in terms of building style, offers remarkable opportunity and different pockets of growth and variety.

The depth of this variety is highly visible and ranges between an impressive number of ‘super-towers’ that rise above city streets and laneways, to the ‘Paris-chic’ of new boutique developments.

While in between these two, there’s an almost no end to the variety of apartments and the interesting demographics of the city’s population.

Melbourne’s CBD apartment market is a great mix that covers quirky, neck-craning heights, luxury a plenty, convenient and many exciting options and it continues to evolve into a very dynamic and fascinating market.

Demographics
Before looking in a little more detail at the physical market, here’s a very brief but very interesting demographic sample.

I’ve based the figures around a collective of figures for Melbourne City, Southbank and Docklands. Together they tally more than 42,000 dwellings with well-over half in Melbourne City.

Then when we look at ancestry all three are dominated by Chinese ancestry; Melbourne City 38.5%, Southbank 20.9% and Docklands 21.5%. The other major groups include English, Indian, Australian, Korean and Irish.

Country of birth is dominated by China; Melbourne City 24.9%, Southbank 13.2% and Docklands 16.5%, while for Australia the numbers are; Melbourne City 14.3%, Southbank 29.4% and Docklands 27.2%. The reverse order between Docklands and Melbourne City is notable. However, what’s a very strong figures is that across all three markets a clear majority of residents have both parents born overseas; Melbourne City 76.9%, Southbank 63.2% and Docklands 66.1%.

Employment numbers also help to paint a glimpse of lifestyle options between the three markets but simply looking at one area of employment and those in the café and restaurant sector. Melbourne City leads with 15%, perhaps not a surprise, then down to 6/5% for Southbank and a further reduction to 5.4% for Docklands. Melbourne’s tourism focus would also be clearly reflected in these figures.

Moving closer to the structure of real estate the demographics show that couples with no kids dominate all three markets lead by Southbank at 67.2%, then Melbourne City with 62.9% and a slight drop to 61.7% for Docklands.

Finally, it’s very apparent that housing is dominated by apartments with all markets slightly north of 97%, and the most popular type of apartment is 2-bedrooms although for this figures Melbourne City comes third with 50.8%, then Southbank with 57.1% and Docklands 55.3%. (Source: 2016 Census)

Varied Neighbourhoods and Near 45,000 Apartments
The Australian Bureau Statistics’ (ABS) projected long term population growth (medium scenario) for metropolitan Melbourne indicates an average of 110,500 new residents annually between 2018 and 2050. The population is expected to increase from 5 million to 8.5 million by 2050.

Housing demand across all of Melbourne will continue to be very strong driven by natural birth and the continued arrival of interstate and international migrants.

Against these projections, currently all indications point to the CBD facing an undersupply of new apartments post-2022. It’s a trend that is already apparent and this will have a positive impact on future rental and price growth.

The Melbourne CBD apartment market has evolved to the varied demographics some of which I’ve outlined.

The core areas now offer a combination of unique lifestyles that appeal to a wide spectrum of buyers and investors. And while the product continues to evolve it will benefit significantly as infrastructure matures and transport connections are expanded including the $11b Metrotunnel, creating an enhanced ‘international brand’.

This will further boost already strong population growth.

Apartment Undersupply
All current trends point to a looming undersupply that will in part result from important structural changes in planning, this will create deep structural change beyond the impacts of a traditional property cycle of supply and demand.

The potential undersupply with be a combination of both the continuation of high occupier demand as well as the expected and serve reduction in new
apartment project offerings, apparent since late 2017.

However, just as it is in other cities it is the big shifts in demographics which are driving development, creating varied neighbourhoods and this reflects in the type of apartment that are available and naturally prices. Less supply will also result in higher rents and logically stronger future capital growth can be anticipated.

Each of the suburbs I’ve highlighted share some common factors while there are some marked differences across aspects of design, quality, location and price.

Melbourne’s planning regulations have previously shaped much of the market to-date and while they are set to change the number and character of sub-markets have resulted from previous planning rules.

I’d suggest that this has created a number of local markets and welcome variety that include the cities striking Super-Towers, Southbank, Fisherman’s Bend and a hand-full of prime projects on and around Spring Street.

There’s also a price difference across these markets. Spring Street and the Paris end of the City set the highest prices, then we have other locations with varied price options, and these include Melbourne Central, West Spencer Street, Southbank and Docklands.

Key Factors Driving Melbourne’s Apartment Market
The market is already large and set to become even more dynamic and these key factors will be a major influence:

  • Significant undersupply
  • Fewer residential developments in the CBD as future supply is expected to move to fringe areas including West Melbourne, Arden Precinct and Fisherman’s Bend.
  • With slower development and higher land prices, new residential towers will see premium prices for apartments.
  • Alongside diminished supply, strong rental growth will follow as population increases which in the longer-term may well lead to double digit rental growth.
  • A new apartment product will emerge with several mixed-use 5-star hotel brands entering the Melbourne market.
  • Longer term capital growth in the Melbourne CBD is expected in particular focused on luxury buildings.

Melbourne City (CBD) looks an exciting market with projects like 17 Spring Street marking a new level of quality and demand.