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Vacancy rates set to blow out

A senior economist has predicted that the magnitude of excess supply in cities like Melbourne is likely to drive “significant increases in vacancy rates” over the next 12 months. 

Speaking at the BIS Shrapnel Forecasting Conference on Wednesday, managing director Robert Mellor noted that although demand for property is weak, “we’ve got record dwelling construction”. 

Mr Mellor explained that the significant surge in dwelling construction is not being met by underlying demand, and in fact demand is “actually weaker today than it was two years ago, and it will likely get weaker with lower population growth in the next 12 months”.  

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“Basically, that's due to falling overseas migration. That's a view that we've had now for the last couple of years,” Mr Mellor elaborated. 

He noted that some cities in Melbourne may have peaked in the current quarter and may start to decline from the December quarter onwards. 

“There is still a lot of supply,” he said, “it’s going to continue to come onto the market well into the second half of 2019. 

“Developers always think from the point of view of sales to an investor, but I’m ultimately interested in who is occupying the dwelling, unless we’ve got a massive increase of people quite prepared to have vacant investment dwellings,” he added. 

Mr Mellor explained that the magnitude of the excess supply won’t be completely known until the dwelling construction projects are completed, however he predicts that over the next 12 months “we will see significant increases in vacancy rates”. 

“Perth was down to 2 per cent vacancy rates three and four years ago. Today, it's around 4.5 per cent,” Mr Mellor pointed out. 

“I suspect that we will see numbers vacancy rates in markets like Melbourne in the inner areas, and Brisbane inner areas, going to 4.5 per cent and maybe even significantly above that given the magnitude of the current boom.” 

[Related: Apartment glut ‘theme park scary’]

Vacancy rates set to blow out
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