Developers Target Owner-Occupiers in Melbourne Apartment Market

Short-term conditions in the new-construction apartment market are likely to remain tough for developers, as the tail end of the last construction cycle is absorbed.

While market sentiment improved in this year's third quarter, much like the outlook for Sydney’s apartment market, the JLL report forecasts a “stabilisation rather than a rebound” in the new construction apartment market.

“Melbourne’s very strong population growth will help with consumption of stock, but construction has been very concentrated in and around the CBD and there are some very large projects recently completed or soon to complete that still have a large amount of stock to be absorbed first,” JLL’s head of residential research Leigh Warner said.

Developers

Melbourne's development site sale activity was subdued in the third quarter this year, with the report stating that no major permitted sites had transacted since the first quarter of 2019.

“Developers continue to target owner occupiers with smaller quality developments and this end of the market has become highly competitive,” the report notes.

The report expects site acquisitions by residential developers in Melbourne’s market as likely to remain low.

“Particularly for CBD sites, where purchasers face competition for other uses such as office development.

“While permitted site sale activity has been low, we may see more smaller private developers offload sites where holding costs are high.”

Related: Melbourne’s Inner City Pipeline Slumps to Six Year Low

Australian Bureau of Statistics data shows that 4200 inner-Melbourne units were approved in the 12 months to August this year, reflecting a 53 per cent year-on-year decrease.

While annual completions are expected to total approximately 6300 apartments this year, JLL says this is 39 per cent lower than in 2017.

The report notes that completions are likely to remain at a similar level in 2020, before moderately rising in 2021.

At the end of the third quarter, 16,900 apartments were under construction which the report notes are due for completion up to 2023.

“These continue to be concentrated in the Melbourne City precinct.”