Melbourne’s inner-city rentals on the road to COVID recovery

After a two-year period that saw it become the most locked-down city in the world, Melbourne’s rental market is starting to bounce back from the pains of the pandemic.

Prior to the pandemic, Melbourne was the most popular Australian destination for overseas migrants, particularly students and visitors, who gravitated towards the inner-city markets. However, as the pandemic ravaged on, arrangements such as working from home, extensive lockdowns, and the culling of international and domestic migration withdrew workers and residents from the city’s central business district.

These factors significantly impacted the inner-city Melbourne property market, which is dominated by high-rise apartment buildings. However, the latest research from Barry Plant indicates that the scars inflicted by the COVID-19 pandemic are beginning to fade, with recent months highlighting strong growth in the area.

This inner-city revival is best exemplified by Docklands. At one point last year, the suburb’s Barry Plant office reported a vacancy rate of 20 per cent. Over recent months, this figure has fallen sharply to just 2 per cent. Barry Plant Docklands’ Daniel Cole said this growth is a promising sign for other suburbs in inner-city Melbourne as it continues to transition out of the pandemic.

“With the international travel ban removed and borders reopening, international students are allowed to return to school which is helping the sector to recover. As consumer confidence returns, alongside domestic and international tourism, we believe the sector will continue to advance,” Mr Cole stated.

He said that Melbourne’s return to normal has “seen a strong demand for smaller apartments in the lower price range”.

“Together with the Airbnb market taking up supply in the area, inner-city apartments are finally seeing increases in rents,” he added.

“It has been over two years since we have seen such demand  we are now seeing multiple groups at our open for inspections, where previously virtual tours were commonplace.”

According to Barry Plant, the top three inner-city Melbourne suburbs that offer investors with the best returns are:

Houses

1. North Melbourne, 2.48 per cent rental yield, median rent $600 pw
2. Cremorne, 2.42 per cent rental yield, median rent $650 pw
3. Richmond, 2.39 per cent rental yield, median rent $673 pw

Units

1. Cremorne, 4.02 per cent rental yield, median rent $500 pw
2. West Melbourne, 3.47 per cent yield, median rent $380 pw
3. North Melbourne, 3.31 per cent rental yield, median rent $370 pw

The performance of these recovering inner-city suburbs is strong; however, the rents they can demand pale in comparison to those demanded by the more expensive Melbourne suburbs. Toorak in outer Melbourne claims the top spot as the suburb with the highest median house rent, at $1,100 per week. Portsea, $1,025 per week, and Brighton, $990 per week, round out the three suburbs with the highest median house rent.

For units, Point Lonsdale lays claim to the highest median rent at $650 per week, followed by Brighton East, $623 per week, and Kooyong, $600 per week.

The rental price growth seen across Melbourne’s prestige markets is likely to creep into Melbourne’s inner city over the coming months.

Mr Cole believes that once international and domestic migration begins to correct to pre-pandemic normal, rental prices in Melbourne’s inner city will once more rise to the levels seen in other parts of the capital.

“Once these things move in favour, we expect Melbourne’s inner-city rents to rise again and the CBD’s vibrancy to continue to return,” he said.

Alongside a rise in rents, Barry Plant has also crunched the numbers to find the top inner-city Melbourne suburbs for capital gains.

According to the real estate group, the top three inner-city Melbourne suburbs for housing value increase are:

1. Port Melbourne, 18.6 per cent capital growth, median price $1,750,000
2. West Melbourne, 15 per cent capital growth, median price $1,360,000
3. North Melbourne, 14 per cent capital growth, median price $1,260,000

Below are the three unit markets that have seen the most growth:

1. Port Melbourne, 34.5 per cent capital growth, median price $935,000
2. Richmond, 25.4 per cent capital growth, median price $700,000
3. Cremorne, 15.7 per cent capital growth, $646,500