With global and domestic economic pressures weighing on many investor and occupier decisions, Australia is expected to gather momentum over the course of 2025. Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets during these complex times.

The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic Global growth is projected to drop to 2.8% in 2025 and 3% in 2026, down from 3.3% for both years compared to previous forecasts. Australia’s economy is also projected to be adversely impacted by the US tariffs with its economy predicted to grow by 1.6%. Despite heightened global uncertainty, growth has picked up and a soft landing is looking increasingly likely for Australia. Beyond this year, the economy is expected to gain further momentum with growth of 2.25% projected in the 12 months to June 2026.

For the first time in 12 months, Melbourne’s median residential house price increased over a quarter having declined in 11 quarters over the past three years but remains 0.3% lower than prices recorded 12 months ago. Despite population growth close to all-time highs, the number of dwellings currently under construction in Victoria is 20% below its peak with annual completions at their lowest level in 10 years. The vacancy rate for Melbourne residential property increased to 2.5% compared to its rate of 2.1% a year earlier but remains below the 10-year average of 3.0%.

Most of the pipeline for the Inner-City residential apartment market currently under construction is within the build-to-rent sector in contrast to the built-to-sell sector. Currently there are 5,900 apartments under construction within the Inner-City Melbourne region. However, with 400 new apartments completed in 2025 to date, this year is on track to record the lowest year of new supply since 2008. Over the past 20 years, on average, there have been 3,600 new apartments delivered to the Inner-City market.

The vacancy rate of the Melbourne CBD office market remains stable at its highest rate since 1997 with St Kilda Road office market’s vacancy rate at its highest level on record and the vacancy rate of the Southbank office market almost double its 10-year average. Tenant enquiry remains subdued, with occupiers cautious in the ongoing uncertain economic conditions and structural impacts of remote work despite increasing employers’ preference to have employees working more in offices. Tenant demand remains focused on prime quality offices to attract employees physically back into offices.

Leasing activity has picked up in the Melbourne industrial market albeit still below the long-term average with interest from manufacturing businesses increasing. Underpinned by the solid leasing activity of 2025 to date and declining supply pipeline, the vacancy rate of the Melbourne industrial market fell over the first quarter of 2025, its first decline in two years. Despite the increase in tax for foreign owners, investor appetite in Melbourne’s industrial market remains strong with solid interest particularly from private investors.

Seemingly, retail sales have bottomed out with signs that the pressures on household budgets have begun to ease. Over the year to February 2025, retail trade increased by 3.0% in Victoria, higher than the 1.7% growth recorded in May 2024, although still well below its 10-year average of 5.0%. In comparison, Australian annual retail trade grew by 2.8% over the year to February 2025, also below its 10-year average. More than $500 million of Victorian retail property assets has transacted in the first quarter of 2025 – the strongest start of sales volume for three years.

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