The Melbourne inner-city apartment market continues to surge with new supply hitting record levels. 

In fact, according to a new report from research house BIS Shrapnel, new apartments in central Melbourne have surged with almost 6,600 apartments completed in 2014.

What’s driving this demand?

Investor demand has remained strong since 2009 following the Global Financial Crisis. Demand was initially buoyed by attractive yields, low interest rates and uncertainty in other investment markets, driving the market for new apartments to record levels in the past 2 years.

Despite the potential impact on rents and prices, new additions to the rental stock across inner Melbourne doesn’t seem to be slowing down.

Approximately 18,500 apartments are on track for completion within inner Melbourne over the next 3 years. 76% of these are in buildings currently under construction. The remainder are in pre-sales.

Overseas Investors are driving this demand and are supported by low borrowing costs, buoyant economic conditions in the buyers’ home countries, and a preference to invest in more transparent and stable political environments.

As the Aussie Dollar continues to fall, this is set to increase appeal for overseas investors by making apartment prices even more attractive.

The results is that overseas investors will likely push the number of rented and unoccupied dwellings up in the area, while decreasing the number of owner-occupied dwellings.

So where should you stay away from?

High rise development has been dominated in the following inner city locations:

  • Melbourne CBD
  • Southbank
  • Docklands
  • St Kilda Rd, Queens Rd
  • Carlton
  • Port Melbourne
  • St Kilda
  • South Yarra

This report and the latest findings reaffirm our position towards inner city markets, particularly in Melbourne and Brisbane. That is to say, rental yields and long-term capital growth will never be found in these markets as long as supply outweighs demand.

These high rise towers and apartments further tend to be over priced and poorly designed, with the majority of 1 bedroom units now under 50m2 internally, and two bedrooms typically starting at around 60m2 internally.

With these conditions, these markets leave a lot to be desired!