Be Wary of Broad Market Statements
As Melbourne’s apartment market matures, it is to be expected that we will witness a broader range of analysis from a diverse range of sources. Like all markets subject to financial and economic interest (and particularly due to the direct social impact of housing on our city), the apartment sector is subject to commentary based in various forms of fact, opinion and perception.
The majority of commentary and ‘analysis’ of the medium and higher density housing markets is data-led. This may be relevant in some instances of when looking at big-picture considerations, however in the general context the majority of commentary fails to incorporate a critical element of the discussion…the ability to interpret the dynamic and disparate influences on these market segments, and apply an educated narrative to allow a greater understanding of the market and the position of your particular property.
Valuable discussion of the apartment market requires acknowledgement that the market does not operate in isolation, but is influenced, either simultaneously or at times individually, by the impact of social drivers and patterns, political cycles and decisions, and economic circumstances. Only by understanding how these factors influence the market, and position of individual buildings within same, can a true discussion be had about the circumstances influencing a property and its position in the market.
A case in point is the increasing conversation surrounding the level of rental demand for apartments throughout central Melbourne, relative to the volume of new construction completions. Much commentary relates to the rental market as a whole, but fails to recognise that just like purchaser demand, the rental market is multi-segmented and driven by a diverse range of factors.
Discussion around the potential for rapidly growing vacancy rates, swathes of involuntarily vacant apartments and falling rents are a) unfounded, and b) demonstrate the reliance of much commentary on pure data and associated forecasts, rather than an inherent understanding of the operation of the market.
Melbourne’s growth story is set to continue, as is demand for inner city rental accommodation. It is now apparent that with a scarcity of new long-term development opportunities remaining, inner city tenants in established, high demand locations will continue to not only be price takers, but also accommodation takers with respect to the nature of accommodation able to be occupied for the ‘affordable’ price point. It is a phenomenon experienced in Global Cities throughout the world, where the costs of housing (rental or purchase), and accommodation trade-offs required to be close to the core of vibrant cities, bear witness to the reality of living in such Global Cities. It is am emerging reality that in the rental market context – if you build it they will come.
With vacancy rates well below 1%, continued deep tenant demand across all sub-sectors of the rental market, an increasing vibrancy within the city core and ongoing regulatory changes reducing prospects for long term supply, we must be careful to take a holistic view of the evolution of our city and inter-related nature of the impact of social change, politics and economics on the sector, and not ‘jump at shadows’ in drawing conclusions as to the position of the market.
As NPM expands our footprint, we look forward to assisting landlords and owner occupiers understand the position of their properties in the market, working with clients to achieve desired objectives, and de-mystifying the increasingly complex market in which we live.