6 Trends Shaping Melbourne’s Commercial Property Market
Melbourne’s commercial real estate sector has experienced a dynamic transformation over the last few quarters. Given ongoing shifts in sub-sector performance, investor behaviour, and regulatory conditions, Search Party Property, the property investment specialists in Melbourne, has noted six key trends currently shaping the city’s commercial landscape.
1. Surge In Foreign Investment
Melbourne’s commercial property market continues to attract significant foreign investment. In the first half of 2024, foreign investors accounted for 24% of total investment sales, up from 16% in 2023.
There were also a few major transactions, including Hong Kong-based PAG’s $315 million acquisition of 367 Collins Street and Aware Super’s $600 million investment in Austrak Business Park, which highlight the city’s growing international appeal.
By the third quarter of 2024, preliminary sales volumes reached $18.7 billion, with foreign investors contributing $4.2 billion. This influx underscores Melbourne’s relevance on the global stage.
2. Office Vacancy Challenges
During the pandemic, most companies were forced to allow their employees to work from home, leaving many office spaces redundant. As of January 2025, however, the A-grade office vacancy rate decreased from 22% in January 2024 to 18.1%, while secondary-grade vacancy rates declined to 20.3%.
Premium and A-grade office spaces in sought-after areas like Melbourne’s East End are seeing steady demand and rental growth. Furthermore, the St Kilda Road office market recorded a vacancy rate of 29.3% in the six months to January 2025, its highest on record. This “flight to quality” trend seems to indicate businesses are investing in higher-grade spaces to entice employees back to the office.
3. Industrial Property Outperforming
Melbourne’s industrial property sector has solidified its position as a national leader. In the first quarter of 2025, leasing activity in the Western and South Eastern regions accounted for almost 85% of all take-up.
As of the second quarter of 2025, the headline industrial vacancy rate increased to 4.67%, with the South East precinct maintaining the lowest vacancy on Australia’s Eastern Seaboard at 2.14%.
Overall, industrial property sales have climbed substantially, driven by Melbourne’s strategic location near key infrastructure like the Port of Melbourne and competitive rental rates compared to Sydney.
4. Build-To-Rent (BTR) Gaining Momentum
As Melbourne’s residential market continues to struggle with supply imbalances, particularly in investor-targeted units, the BTR sector appears to be gaining traction. The BTR model addresses the city’s rental shortages and affordability concerns, providing long-term housing solutions. A growing population and high rental demand continue to make the BTR sector increasingly attractive to developers.
In 2024, 3,810 BTR units were completed, marking an 80% increase in BTR stock, with a total capital value for all BTR assets estimated at $4.1 billion.
5. Tourism And Events Fueling The Hotel Sector
Melbourne’s hotel market has staged a strong recovery after the pandemic downturn. As of July 2024, occupancy rates increased by 5% compared to 2023, with average daily rates reaching $236, surpassing even pre-COVID levels.
Corporate events and inbound tourism appear to have driven this growth, while new hotel openings, including those for high-profile brands like W and Ritz-Carlton, are reflective of growing investor confidence.
Ongoing hotel projects seem to indicate Melbourne is likely to maintain its status as a leading destination for both leisure and business travel.
6. New Investor Preferences Shaping Market Dynamics
Investors are increasingly showing a preference for commercial assets in high-demand sectors, such as logistics and premium office spaces. This shift appears to be driven by recent price corrections, presenting new entry points for discerning investors.
However, with Victorian tax adjustments and fluctuating capitalisation rates, investors seem to be approaching Melbourne’s market with a more strategic focus now, often targeting properties that offer either market resilience or adaptive reuse potential, such as residential conversions.
Outlook
Overall, Melbourne’s commercial market fundamentals remain strong, with continued appeal to both domestic and international investors. The strategic significance of the city’s assets, along with ongoing demand in the logistics and premium property sectors, positions Melbourne for a promising finish to the year.
With growing investor confidence, the market is poised for selective, sustainable growth heading into 2025.
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