Despite economic challenges, Australia’s property market is expected to gain momentum through the remainder of 2025. Urban Property Australia reviews current trends and explores the outlook for Melbourne’s property markets.

Economic Outlook

The global economy remains in flux, but has shown resilience to the trade policy shocks, in some part because these shocks materialised on a smaller scale than expected, but the drag from shifting policies is becoming more visible. Globally, more recently it appears that consumer consumption growth and business investment has weakened in line with depressed consumer and business confidence. Despite US tariff policy creating global trade uncertainty, Australian business confidence has not experienced a significant impact. After years of subdued growth, Australia’s economy is gathering momentum, with Australia’s economy most recently recording its highest annual growth rate in two years.

Residential Market

Melbourne’s residential prices continue to recover, having increased for a third consecutive quarter, recording their highest quarterly growth rate since 2021. Melbourne house and unit prices have now reached their highest levels since mid-2022. Despite population growth close to all-time highs, the number of dwellings currently under construction in Victoria is 17% below its peak. With the construction pipeline still constrained the vacancy rate for Melbourne residential property remains below the decade average and sits at 2.5%. Reflecting the low vacancy environment, metropolitan residential rents across the precincts increased over the past year and now sit just short of the all-time high levels.

Residential Apartment Market

2025 is set to the lowest year of new Inner-City residential apartment supply since 2008 with 1,400 new apartments have been completed so far. The vast majority of the pipeline of new apartments for the Inner-City currently under construction are within the build-to-rent sector with the bulk of the apartments located in the Docklands, followed by Southbank. Values of Inner-City apartments appear to have stabilised, however remain lower than they were 12 months earlier. Transactional activity for apartments in the Inner-City region this year has been strong with more than 5,200 sales recorded, a decade high.

Office Market

Total transactional activity of Melbourne offices has now exceeded $1.5 billion in 2025 to date with sales volume already surpassing total levels recorded in 2024 and 2023. More than half of the sales volume of Melbourne offices was for stock in the CBD with sales volume for both St Kilda Road and Southbank office markets, recording their highest volume since 2019. While tenant demand improved, the vacancy rate of the Melbourne metropolitan office remains more than double the long-term average, as a result of the elevated vacancy rate, rents continue to downward pressure as tenants have many options in other markets including the CBD.

Industrial Market

Industrial leasing activity has picked across the Melbourne market but remains below the decade-average led by logistics and manufacturing businesses with owner-occupiers also prominent. While investment activity in the Melbourne industrial market has been solid this year, the impact of the implementation of the absentee owner surcharge and the elevated land tax rates across the state has softened investor interest leading to Melbourne industrial yields widening in comparison to the Sydney and Brisbane industrial markets. With tenant demand remaining below long-term levels, the vacancy rate of the Melbourne industrial market increased to its highest level in five years.

Retail Market

Boosted by ongoing population growth and improving consumer confidence, Victorian retail spending continues to gather momentum recording its highest annual growth rate since 2023 with both discretionary and non-discretionary spending increasing. Retailer demand has been particularly strong in sectors with essential goods, such as supermarket-anchored neighbourhood centres and household goods in large format retail, the latter supported by ongoing housing activity. Limited new supply is intensifying leasing competition, particularly in prime locations. Coupled with the ongoing strength of consumer spending, investment activity has been supported by the cash rate cuts leading to more than $900 million transacted in the Melbourne retail property market.

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