Is Melbourne’s Property Market the Underdog Story of 2025

Insights & Observations

As we step into Autumn, signs are emerging that Melbourne’s property market is on the cusp of a shift — and this time, it’s working in buyers’ and investors’ favour. The fundamentals remain strong. Despite the recent distortions in residential pricing, Melbourne is increasingly looking undervalued — especially when compared to other capital cities like Brisbane, Adelaide and Perth, which have outperformed Melbourne over the past five years. In fact, Melbourne is now one of the cheapest capital cities in Australia on a relative basis, a position we don’t expect to last.

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What is driving the shift?

Interest rates are expected to fall by another 1–2 times in 2025, a move that would stimulate borrowing and investment.

• Housing supply is tight, with not enough homes being built to meet growing demand.

• Melbourne’s population has boomed, and now the fastest-growing city in Australia.

• The Victorian Government’s Big Build infrastructure program is injecting long-term value into key suburbs.

• Vacancy rates are as low as 1% in some areas, pushing rents higher and reinforcing the appeal of residential investment.

While the median house price in Melbourne dropped 3% over the past year (to February 2025), recent months are showing signs of stabilisation — and even a modest rally.

As always, we remind our clients: property is a long-term game. Over a 15-year horizon, Melbourne remains one of the top three most valuable cities in Australia

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What is happening in Commercial & Industrial?

The commercial property landscape is reshaping.

• Retail: The age of "set and forget" bricks-and-mortar retail is over. Online shopping has shifted the tenant mix. Traditional strongholds like banks, newsagents, and pharmacies are no longer the backbone of strip retail. In contrast, fast food, medical, allied health, eyewear, and lifestyle brands are holding their ground.

• Office: Once the darling of commercial investment, office space is now facing headwinds. Melbourne’s office workers are still only back to 49% of pre-COVID attendance, compared to 73% nationally. Large floorplates remain difficult to lease, with incentives of 25–30% common. Smaller suburban offices are faring better, while B and C grade CBD buildings may face repurposing.

• ‍Industrial: This has been the standout performer. Over the last five years, industrial land values have doubled. Demand is starting to moderate, but large logistics tenants (1,000–3,000m²) remain active. However, there is oversupply in strata-titled factory units, where vacancy rates are now climbing.

Melbourne is ripe for a rebound

In summary, Melbourne is ripe for a rebound. For buyers, investors, and long-term holders, this may be the moment to act before momentum builds. While short-term data still shows volatility, the macroeconomic and demographic trends point firmly toward opportunity.

If you’d like to discuss the opportunities this market presents for your portfolio — residential or commercial — we’re here to guide you.

Greville Pabst Property Advisory

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