At a time of fragile economic stability amid rising geopolitical risks and structural shifts, Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets.

Economic Outlook

The disruptions associated with the Iran war, including to energy markets and supply chains, have lowered expected global economic growth, pushed up inflation, and made the outlook more uncertain. The Australian economy will slow in response to higher interest rates and fuel prices however the underlying resilience of households and businesses make a recession unlikely. While the Australian economy is not immune to global developments, forecasts imply that Australia will outperform most of its developed economy peers growing by 2.0% this year.

Residential Market

Melbourne’s median residential house prices continue to improve, having increased for a fifth consecutive quarter, rising to its highest level since mid-2022. While current construction levels of Victoria’s new dwellings have increased 4% over the year, they remain 19% lower than its 10-year average. With vacancy remaining low, the weekly median rent for houses in metropolitan Melbourne sits just short of its all-time high while Melbourne units recorded stronger rental growth and sit at record high levels. Outside of Melbourne, both the median Victorian Regional house price and median Victorian Regional unit price have reached all-time highs as at March 2026.

Residential Apartment Market

Currently there are 7,000 apartments under construction within the Inner-City apartment market with most new apartments based in the Docklands and Southbank however this pipeline equates to 36% lower than average levels despite rents approaching all-time highs. Buoyed by the constrained pipeline and growing rents, transactional activity for apartments in the Inner-City region in 2026 has been strong to date with more than 1,570 sales recorded and is on track to an above-average year for sales volume boosted by an increasing investor appetite.

Office Market

Although tenant demand has improved with the level of new supply exceeding take-up, the vacancy rate of the Melbourne metropolitan office market remains above average, increasing over the past six months. Over the year to March 2026, Victoria’s total employment growth, continued to ease from historical levels, with 26,000 additional jobs added across the state, but a decline of 63% recorded 12 months earlier. Tenant movement remains focused on quality accommodation where buildings offer better amenities for staff with office occupancy remaining relatively modest. Urban Property projects that tenant demand while remaining selective on stock will remain subdued in light of the emerging conflict in the Middle East.

Industrial Market

With industrial leasing activity having picked up boosted by the resilience of the domestic economy through the second half of 2025, more recently tenant demand has softened, adversely impacted by the Iran conflict with many occupiers postponing leasing decisions. Looking ahead, tenant demand is forecast to ease, as the increased energy prices (and subsequently) freight costs likely to moderate occupier investment decisions to the leading industries of retail and logistics in particular. While sales activity in Melbourne’s industrial property market has been relatively limited to date this year with almost $250 million transacted, well below average.

Retail Market

Over the year to February 2026, Victorian retail spending increased by 3.8%, its growth rate softening in line with higher cost of living pressures. Adversely impacted by the higher cost of living, discretionary spending contracted by 2.8% over the year to February 2026 whereas non-discretionary Victorian household spending increased by 0.8% over the year. While transactional activity remains below the historical average, investors’ appetite remains robust for retail property with consumer spending somewhat surprisingly remaining relatively resilient for the past two years with $300 million transacted in the Melbourne retail property market over the first quarter of 2026.

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