RESIDENTIAL RESEARCH

MELBOURNE APARTMENTS RESIDENTIAL MARKET BRIEF Q3 2014

Fuelling investment in metropolitan apartments, Key Facts foreign investors and developers continue to be drawn to the top ranked global city for quality of life, as well as, the Upward annual trajectory continues in apartment values world’s most liveable city. (up 6.0%) and rents (up 2.6%); vacancy is stable at 2.9%. eighteen months have continued to push Building approval Overview building approvals upwards and driven up momentum is driving a rise in In August 2014 Melbourne received the title lending finance sales volumes and housing finance. of ‘World’s Most Liveable City’ for the fourth Residential development year in a row —defeating 139 other global site sales totalled $1.4 billion cities to top The Economist Intelligence Development Sites in the last year; 36% sold to Unit’s Global Liveability Index. Earlier in the Over the twelve months to August 2014, foreign developers year, Melbourne was ranked best global city $1.4 billion worth of major sites have been for quality of life in the Knight Frank Global purchased, potentially suitable for high Key transport infrastructure Cities Survey. The strengths in the fields of density residential development in the projects are in the pipeline for healthcare, education, infrastructure and Melbourne metropolitan area. A comparison next ten years sport continues to elevate Melbourne as a to the previous year, shows a 57.7 percent popular destination for enquiries into increase in sales volume. apartment sales by foreign and local investors. Foreign buyers made up 36 percent of the total number of sales including the record Strong population is projected for sale of 93-119 Kavanagh Street, Southbank metropolitan Melbourne coming in just for $145 million to Malaysian developer, PJ behind Perth, across the major cities across Development Holdings in June 2014 and a Australia. Projections of 2.0 percent per month later, China based Australia Star annum, over the next thirty years, will Tower Development Pty Ltd purchasing the sustain demand for housing, as it has in the Kinnears Rope Factory site in Footscray for MICHELLE CIESIELSKI past ten years annually trending at 2.1 $60 million. percent. Associate Director Singapore’s Aspial Corporation purchased Follow Michelle at @MCiesielski_AU Sustained low interest rates over the past the site for the 100 storey tower to be

known as 70 Southbank Boulevard, vacancy will trend above the market Southbank for $42.3 million and 383 King equilibrium of three percent over the Street, West Melbourne for $41.0 million. medium term. PIPELINE OF PROPOSED KEY Planning Over the next ten years, there are a TRANSPORT number of key proposed rail and road With the exception of Moreland, the top projects in the pipeline for metropolitan PROJECTS ten Local Government Areas (LGA) Melbourne. The Dingley Bypass and the witnessed an upward trajectory in East West Link have been planned to Dingley Bypass [2016] apartment approvals between 2012/13 improve congestion and freight Construction of the next stage of and 2013/14. movement on Melbourne roads, whilst the Dingley Bypass between , Oakleigh South to the Melbourne Rail Link and Airport Rail , Dingley Village. Key Melbourne LGA continued to dominate Link are proposed to support the to improving traffic and freight building approvals in the 2013/14 increased number of commuters movement in South-East financial year with 4,520; outstripping the travelling on the existing rail network. Melbourne. next ranked, Stonnington LGA at 1,907

Upgrade and construction of approvals. Construction level crossings and stations [2018] The removal of multiple Cranes have dominated much of level crossings at St Albans, FIGURE 1 Melbourne’s skyline for the best part of Ormond, Glen Iris, Blackburn, Building Approvals, Highest LGAs the last decade. Over this period, Murrumbeena, Carnegie, Clayton Total number of new residential apartments and Noble Park. according to the Rawlinsons Building

Price Index, costs of construction have increased 4.3 percent year-on-year. The East West Link—Eastern Melbourne Section [2019] A freeway for Building Price Index is based on the Stonnington cross-city connection running from effect of building costs brought about by the Eastern Freeway to CityLink. Yarra periodic variations in the rates of labour The Western Section [2023] will Boroondara extend from the Eastern Freeway and materials, as well as, reflecting the to the Western Ring Road. Key to Port Phillip cost effect of building activity and

providing an alternative route for Moreland resource availability at any time. In June east-west travel. 2005 the Building Price Index overtook Moonee Valley the Consumer Price Index for the first Melbourne Rail Link [2024] Glen Eira time since June 1989 and has continued New underground stations at Darebin Fishermans Bend (Montague) and on an upward trajectory. Domain, as well as, twin tunnels Whitehorse from Southern Cross to South 0 1,000 2,000 3,000 4,000 5,000 Yarra with new underground Aug-13 to Jul-14 Aug-12 to Jul-13 platforms to support a new FIGURE 2 Frankston to Lilydale/Belgrave line. Source: Knight Frank Residential Research, ABS Building Price Indices

Melbourne Airport Rail Link Melbourne Metropolitan Building Price Index v Consumer Price Index [2024] Construction of a railway The number of building permits for

line to connect Melbourne Airport residential apartments, issued by to Southern Cross Station in the certifying authorities in the state of 225 city and the Cranbourne- Pakenham corridor. Train-tram Victoria, totalled 23,370 in the year to July 200 interchanges at the new 2014. This increased 9.4 percent on the 175 underground stations. year before, and overall exceeds the ten 150 year average of 15,540 building approvals 125 per year. It is forecast that building 100 approvals will continue to increase over the coming twelve months with the 75 number of apartments to accommodate 50 recent development sites transacted. 25

0 The volume of building approvals in the Jun-80 Jun-82 Jun-84 Jun-86 Jun-88 Jun-90 Jun-92 Jun-94 Jun-96 Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14

pipeline currently outweighs other capital BUILDING PRICE INDEX CONSUME PRICE INDEX cities; however strong population is projected for the Melbourne metropolitan CPI is based on All Group Index Numbers as issued area and demand remains supportive. If by the Australian Bureau of Statistics

this level of population is not reached, or Source: Knight Frank Residential Research, only provisionally met, it is likely that Rawlinsons Construction Handbook, 2014, ABS

2 MELBOURNE APARTMENTS Q3 2014 RESEARCH

TABLE 1 Key Indicators, Apartments, June 2014

Capital Capital Sales Median Gross Median Growth Growth Volume Region Capital Value Rental Yield Weekly Rent Last Quarter Last Year Last Year ($) (%) ($) (%) (%) (no.)

Melbourne, 3000 441,500 2.4 5.4 5.71 2,625 475 CBD & Inner/North West 422,000 2.1 4.1 4.89 14,616 395 North East 492,000 1.3 7.2 4.14 6,226 390 South East 459,000 1.2 6.5 4.37 6,589 385 Bayside/Frankston 494,000 1.6 6.9 4.28 7,140 405 Melbourne Metropolitan 462,500 1.9 6.0 4.47 34,285 395 Australia 436,000 2.1 7.7 4.92 159,834 410

Source: Knight Frank Residential Research, Residex

the last quarter with growth of 1.9 Completions percent; only slightly below the Australian Apartment Rents In Victoria, the total value of work benchmark, to stand at a median capital Melbourne metropolitan rents were up completed on new residential value of $462,500. 2.6 percent over the twelve months to apartments, less the direct effects of June 2014 to a median weekly rent of price changes, has shown upward $395. At the same time, gross rental momentum since 2007. Trending well yields compressed marginally, by 4bps, FIGURE 4 above the ten year average, the total to 4.47 percent, as prices rose. The Median Values value of work completed tallied to $5.82 suburb of Melbourne achieves a weekly Melbourne Metropolitan billion in the year to June 2014. % annual change in growth for apartments rent at $475. Located in the Inner (0- 10km) ring, the 6-month average vacancy trend was recorded at 3 percent in 20% FIGURE 3 August 2014, steady over the last month.

Value of Work Completed, VIC 15% $billions, new, residential apartments The metropolitan Melbourne trend also

10% remained steady at 2.9 percent, just shy 7 of the three percent market equilibrium.

5% This is likely to increase slightly in the 6 coming months, although this is also 0% 5 dependent on the rate of take-up with the growing population, supporting demand. 4 -5% The CBD & Inner/North West region 3 -10% continues to achieve the best gross rental

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Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 yields at 4.89 percent. The suburb of Melbourne achieves a yield of 5.71 1 Source: Knight Frank Residential Research, Residex percent, driven by the performance of the

0 one-bedroom apartments market, whilst the two-bedroom market remains steady.

Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 The Bayside/Frankston region, closely followed by the North East region, TABLE 2 Source: Knight Frank Residential Research, ABS achieves the highest median capital Total Vacancy values, with $494,000 and $492,000 % 6-month average trend respectively. Ring Aug-14 Jul-14

Apartment Values Volume increased 16.4 percent over the Inner (0-10km) 3.0 3.0 Apartment values in metropolitan past twelve months to record 34,285 Middle (10-20km) 3.1 3.0 Melbourne have experienced positive sales in metropolitan Melbourne, with a Outer (20km+) 1.9 1.9 annual growth for the two years to June large portion of these sales, as expected 2014, with the last year witnessing to be apportioned to the CBD & Inner/ Total 2.9 2.9 growth of six percent. This was upheld in North West region. Source: Knight Frank Residential Research, REIV

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RESIDENTIAL RESEARCH Outlook Michelle Ciesielski  Gross State Product in Victoria is  Building approvals will continue to rise Associate Director forecast at 2.4 percent per annum over over the coming twelve months with +61 2 9036 6659 [email protected] the next five years; averaging 21.1% as the number of apartments to a share of Australia’s output accommodate recent development Matt Whitby

sites purchased. Head of Research and Consulting  Low interest rates are forecast to +61 2 9036 6616 remain steady with no change  With interest rates remaining low and [email protected] expected until mid to late 2015 and strong population growth, the rate of PROJECT MARKETING MELBOURNE banks are lending at competitive rates. capital growth is likely to be sustained Daniel Cashen for the remainder of 2014, with growth  Population growth to continue, Director steady heading into 2015. +61 3 9604 4749 projected annually at 2.0 percent over [email protected] the next thirty years remaining  As more new supply comes on line supportive of apartment demand. after a long period of work completed Richard Drummond Director annually, it is likely that vacancy will  Projected overall construction costs to +61 3 9604 4610 trend above the market equilibrium of increase 0.4 percent per quarter until [email protected] three percent for the medium term. March 2015 (AECOM). INTERNATIONAL PROJECT MARKETING Erin Van Tuil Associate Director +61 2 9036 6699 [email protected]

VALUATIONS RESIDENTIAL DEVELOPMENT David Way Director +61 3 9604 4704 [email protected]

VICTORIA James Templeton Managing Director +61 3 9604 4724 [email protected]

Knight Frank Residential Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

Knight Frank Residential Research regions: RECENT MARKET-LEADING RESEARCH PUBLICATIONS CBD & Inner/North West – postcodes 3000 to 3079 North East – postcodes 3080 to 3140 South East – postcodes 3141 to 3180 Bayside/Frankston – postcodes 3181 to 3207

© Knight Frank 2014 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank Sydney Apartments Melbourne Suburban Prime Global City Global House Price for any loss or damage resultant from the contents of this document. As a general report, this material does not Residential Market Strips Market Brief Markets Index necessarily represent the view of Knight Frank in relation to Brief October 2014 September 2014 2014 Q2 2014 particular properties or projects. Reproduction of this report in whole or in part is not permitted without prior consent of, Knight Frank Research Reports are available at KnightFrank.com.au/Research and proper reference to Knight Frank Research.