At a time of profound uncertainty and accelerating changes globally, Urban Property Australia explores the latest indicators and discusses what may be next for Melbourne’s property markets during these evolving times.

Economic Outlook

The global economy has shown notable resilience to heightened trade tensions and policy uncertainty; however, the global economic outlook remains clouded by elevated macroeconomic uncertainties and shifting trade policies. Risks to the outlook remain tilted to the downside, however global activity could be further lifted by AI-related investment. The Australian economy is gathering momentum in the face of substantial global headwinds, recording the fastest pace of growth in two years. Looking ahead, Australian economic growth is forecast to pick up to 2.25% in both 2026 and 2027.

Residential Market

Melbourne’s residential house prices have reached their highest level in three years, having now increased for four consecutive quarters and recording its highest annual growth since 2022. Outside of Melbourne, both the median Victorian Regional house price and median Victorian Regional unit price have reached all-time highs as at December 2025. Despite Victoria’s population growing at above its long-term average, the number of dwellings currently under construction in Victoria is 17% below its peak. Reflecting the constrained pipeline, the vacancy rate for Melbourne residential property remained steady at 2.4% and remains below the 10-year average of 2.9%.

Residential Apartment Market

Transactional activity for Inner-City residential apartments was strong in 2025, with more than 7,200 sales, its most active year since 2015 and 42% higher than the 10-year average for annual apartment sales. Most transactions were focused on Southbank and CBD-Core located apartments which collectively accounted for 56% of all sales. Inner-City apartments values continue to recover, with median Inner-City apartments prices having increased for three consecutive quarters. Inner-City apartments prices increased by 2.0% to $656,500, their highest value since the peak of December 2021.

Office Market

Sales volume across Melbourne’s office markets surpassed $2 billion for the first time since 2022 supported by increased activity in the CBD. Transactional activity of Melbourne offices totalled $2.1 billion in 2025, 50% higher than levels recorded in 2024 albeit total volume remains below the long-term average. While institutional investors remain relatively subdued, residential developers were active in 2025 with a number of offices purchased across the sub-markets for repurposing, capitalising on the modest tenant demand environment and soft investor appetite. While tenant demand improved, the level of new supply exceeded take-up, resulting in the vacancy rate of the Melbourne metropolitan office market increasing.

Industrial Market

The vacancy rate of Melbourne industrial market increased to 4.2% – its highest rate in five years. Vacancy rose in all regions, with the greatest annual increase recorded in the West. Sales activity in Melbourne’s industrial property market totalled $1.6 billion over 2025, its lowest annual level since 2019. Investment activity in Melbourne’s industrial property continues to be restrained because of the increase of the foreign owners’ land tax as witnessed by 46% decline in sales volume from the previous year and 37% lower than the 10-year average.

Retail Market

Despite easing employment growth, nation-leading population growth continues to underpin Victorian retail spending. Over the year to November 2025, Victorian household spending increased by 4.9%, its highest annual growth rate since September 2023. Retailer demand remains subdued for most discretionary forms of retail, with national retailers focusing on optimal locations rather than volume in expansion strategies. Although investors are actively seeking investment opportunities in the sector considering the retail sector’s performance, sales activity in Melbourne was subdued. Almost $950 million of sales in the Melbourne retail property market in 2025, the lowest annual transactional volume in 15 years.

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