As we enter the final quarter of 2025, confidence is gradually returning to the Victorian Property Market, particularly in Melbourne. Despite a challenging backdrop of rising ownership costs and ongoing economic uncertainty, Melbourne’s property market is undergoing a quiet but meaningful recalibration – offering emerging opportunities for investors who understand the numbers behind the noise.
Residential: Investors Making a Quiet Comeback
Since mid-2025, Melbourne’s residential market has shown signs of life, especially in value-driven segments. The sub-$1 million housing market remains highly competitive, sustained by both first-home buyers and value-seeking investors. Notably, premium properties above $1.8 million are also attracting renewed interest, suggesting that buyer confidence is returning in line with a more stable interest rate environment, hinting at growing buyer confidence across multiple price brackets.
However, the apartment sector remains stagnant. Values have seen little growth, constrained by limited demand and depreciation in aging stock, particularly outside prime locations. Government policy continues to play a significant role. Land tax reforms which slashed the tax-free threshold from $300,000 to $50,000 have increased holding costs for investors. In parallel, new minimum rental standards have pushed up compliance costs, from efficient heating/cooling upgrades to enhanced safety requirements. This drove many landlords out of the market over the past 2–3 years, contributing to Melbourne’s decline in median house prices, now sixth among Australia’s capital cities, but this price correction may be drawing investors back. Lower entry prices are increasingly seen as offsetting the increased cost burden, especially as the RBA holds steady on interest rates and inflation eases.
Commercial: City Fringe Stays Resilient
Melbourne’s city fringe commercial market weathered a tough FY25, largely due to the impact of higher debt costs, but activity remained solid: 116 properties changed hands, totalling $454.6 million, with a strong showing from South Melbourne, Cremorne and Collingwood.
Owner-occupiers and private investors led the charge, particularly in office and warehouse assets. Properties with value-add or redevelopment potential proved especially popular. In retail, demand was driven by cash-rich investors who outperformed debt-dependent buyers.
Over 47% of sales were brokered through offshore networks, with a notable focus on vacant or short-term leased assets where buyers see long-term upside through repositioning or redevelopment.
Average land rates came in at $8,311/sqm, with building rates averaging $6,649/sqm. Yields hovered around 6.97%, with premium stock trading below 6%.
Industrial and warehouse assets continue to benefit from structural tailwinds, particularly in last-mile logistics. Meanwhile, flexible, tech-enabled office spaces are driving premiums, with refurbishment potential playing a major role in pricing differentials.
What to Watch
From a Property Valuation Perspective, the market is being shaped by a dynamic interplay of softening capital values, strong owner-occupier demand and policy-driven cost pressures. As interest rates stabilise and inflation trends down, the outlook for 2026 suggests a more predictable environment, for both residential and commercial assets, construction costs, land tax implications and value-add potential are becoming critical components.
