In Melbourne, sometimes disparagingly referred to “Australia’s Number 2”, renewed interest from potential residents and investors has demonstrably filtered through to the property market by way of continuing strong owner-occupier and investment sales. While some concerns regarding unemployment in the outer West of the city and consumer price inflation at the state level threatened to undermine confidence; the recent cooling in the Sydney residential market and the concerns regarding inner city oversupply in Brisbane have benefited Melbourne in the eyes of many property investors.
This has also been aided by the recent Federal government support for the development of the Tullamarine Airport rail link, a consistent and glaring omission on the part of Australia’s most liveable city. Current congestion on the Tullamarine Freeway is reflective of the 34 million annual passengers that the Melbourne Airport services, but recent projections suggest that figure could balloon to 60 million within the next 15 years.
All this has yet to manifest itself in a demonstrable impact on the property market along the proposed rail route, perhaps because the State government preferred path is not the same as the Federal government’s, with the Andrews government expressing a preference to link the Caulfield Station precinct with Monash University via Chadstone as part of a multi-stage tram rollout that would relieve some of the current network pressure on the burgeoning south-east.
As in the other states, one of the most common enquiries the Melbourne office receives is from developers struggling to finance their site acquisitions for both permitted as well as unapproved sites. Many vendors of small sites, cognisant of planning changes that would result in a lesser site yield if a developer went back to Council, are holding out for top dollar, all while last year’s changes to stamp duty at the State level are dis-incentivising off-the-plan purchasers from putting down their hard-earned. This is creating a perfect storm of risk for the small-medium sized developer, many of whom are moving out of central Melbourne with a number of sensible projects coming across our desk in areas such as Pakenham, Mernda where median house prices there have gone up 30% over the last two years, and even less discussed locations such as Doreen.
Residential developments in the outer suburbs (defined as >25km from the Melbourne CBD) continue to reflect the low-interest rate environment and buoyant demand from first home buyers and young families, while closer to town we are working with a number of developers to bring medium to higher density projects to market in the growing residential hot spots of Preston, Bentleigh and Brighton.
In other sectors, retail trade remains the strongest in the nation, with Victoria’s final demand growing by 3.0% year-to-date, and that’s off the back of 4.4% annual growth last year. Perhaps the situation with respect to Melbourne’s strong retail market is best summed up by the sale of a stake in the super-regional Highpoint shopping centre in the suburb of Maribyrnong at a 4.2% yield late last year. This is the firmest yield of such a sale in Australian history, while another notable transaction was the March 2018 sale of Coles Clayton for $17.115M, reflective of a 2.57% yield.
The CBD office market firmed over the latter part of 2017 and currently jockeys month-to-month with Sydney as to who has the lowest vacancy rate of the Australian CBDs. In any event, at 4.6%, this is the lowest vacancy rate in Melbourne CBD since 2008. This has been reinforced by the continuing trend of withdrawing and repositioning older office space in the CBD and immediate surrounds into new residential configurations, and the international and local demand for quality, centrally-located assets in the $5-50M price bracket.
With 6.35 million residents, 75% of whom live in Melbourne, Victoria is the benefactor of several recent demographic and economic trends that have seen the State move into the position whereby it now accounts for 37% of Australia’s population growth with demographer Bernard Salt predicting it to surpass Sydney in size within the next 12-15 years due to the latter’s geographic constraints to infrastructure.
While some economic pundits are forecasting interest rate hikes during 2018 and the so-called “ghost tax” is set to come into effect in 2019, the outlook for Melbourne remains positive with the well-publicised housing affordability of Sydney seeing many elect to leave the city, notwithstanding the continuing economic strength and job prospects in NSW. The primary benefactor of this occurrence is Melbourne and if the current trends hold, Salt’s prediction that it will overtake Sydney as the most populous city in the country by as early as 2031 could well come true.
Daniel Kisbee – State Manager Victoria