Melbourne City Fringe Market Update

FEBRUARY 2021

Despite the significant headwinds 2020 presented, our data indicated that the city fringe market proved resilient with minimal decreases in property values and buyer demand. The shadow cast by COVID-19 bore resemblance to the period surrounding the 2019 banking Royal Commission as vendors and buyers hesitated to act. This inevitably pushed deal volumes to fall 31% below 2019 levels. Despite the uncertainty that arose last year, city fringe fundamentals remained strong, buyer demand held, and transactions continued throughout the extensive lockdowns (albeit at lower volume levels).

2020 OBSERVATIONS

Optimistic Start (January–April)

• Buyers overwhelmingly consisted of underbidders from campaigns in late 2019. These groups continued to take a long-term view on the property market despite the increasing signs of the pandemic and represented 62.5% of the successful purchasers in campaigns our team was involved in.
• Strong demand for value-add buildings with longer term residential and office development upside remained.
• Increasing unwillingness from buyers to inspect properties due to their limited knowledge of COVID-19 and any potential health impact.

Hard Hold (May–October)

• Despite an extended lockdown across Victoria during July – October the city fringe market continued to produce transactions albeit at a lower volume than seen in 2019. The city fringe market during this time averaged 4 deals per month.
• Vendor hesitation to market properties for sale resulted largely from the understand that buyers simply could not legally inspect due to government restrictions.

Strong Finish (November–December)

Pent up buyer demand saw a 75%+ surge in deal volume to $50,000,000 of city fringe building transactions in December 2020 vs all previous months in 2020. • New buyers appeared, as small to medium businesses reshuffled their office requirements and looked to alternative locations. • Strong demand re-emerged for vacant possession properties in the city fringe with clearance rate for sales in December rising to 87%.

2021 Outlook

• Larger corporations and companies who have tighter ‘return to work’ policies may constrain the Melbourne CBD’s recovery and push more groups to the city fringe.
• Existing small to medium size businesses in the city fringe adapt quicker to the easing of restrictions.
• Retail and hospitality vibrancy in the city fringe recovers fast and demand continues to strengthen from tenants and new owner occupiers.