Melbourne resilience: Looking beyond the headlines

Melbourne's commercial real estate market stands at an inflection point. Global economic volatility and uncertainty continue to weigh on sentiment, while the Victorian Government’s recent property tax changes have introduced further headwinds for both investors and businesses.

Yet beneath the noise, the evidence of resilience is mounting. Across multiple sectors, demand fundamentals remain strong, capital values are stabilising, and investors are beginning to act on opportunities that could deliver outsized returns over the coming cycle.

As JLL Research’s Melbourne Resilience report highlights, the city’s underlying strengths -from population growth and liveability, to its corporate and innovation base - point to a compelling long-term investment case.

Melbourne is on track to become Australia’s largest city by 2035, or earlier, with Oxford Economics projecting an increase of almost 840,000 residents over the next decade. This surge, equivalent to the population of a city the size of Frankfurt, Luxembourg or Edinburgh, will underpin demand across residential, commercial, and living sectors.

The city also benefits from deep exposure to corporate Australia. Twenty-one of the ASX top 50 companies are headquartered in Victoria, spanning sectors from banking to healthcare and technology. This concentration generates significant agglomeration benefits - increased productivity, innovation, and cost efficiencies through the proximity of economic activity.

Melbourne is also the home of Australia’s $3.2 trillion superannuation industry, with five of the country’s eight largest industry superfunds headquartered in the city. This critical financial base further reinforces Melbourne’s national and international importance.

Despite the weight of recent supply waves across office, industrial, residential, and hotel markets, limited future pipelines suggest an improving outlook for existing assets. Developers continue to face elevated construction costs, financing challenges and builder shortages, which are curbing new supply.

For investors, this scarcity represents opportunity. Rental growth is already filtering through, with Melbourne’s south east industrial market maintaining the lowest vacancy rate on Australia’s East Coast at just 2.1%. Retail sub-sectors are also rebounding: large format retail rents grew 3.7% year-on-year to Q2 2025, the second-strongest growth nationally, while shopping centre vacancy sits at just 3.7% behind Sydney and Canberra.

In the living sectors, momentum is equally evident. Melbourne leads the national Build-to-Rent pipeline with 12,000 units delivered or under construction, while student accommodation demand is booming - visa applications in Victoria reached a record 142,000 in 2024, well above pre-pandemic levels, yet only 2,440 new PBSA units are under way. Hotels, meanwhile, have exceeded performance expectations, with both ADR and RevPAR rising strongly, supported by inbound tourism, airlift recovery, and the city’s world-class events calendar.

Perhaps most tellingly, Melbourne’s office sector is beginning to turn a corner. After 11 consecutive quarters of decline, prime office rents recorded positive net effective growth in Q2 2025, while secondary CBD rents stabilised. Vacancy rates have also started to ease from their 2024 peak.

Kate Pilgrim, Managing Director of JLL Victoria, adds that the recovery is not just an investor story, but an occupier one too.

“Businesses are seeking workplaces that help them attract and retain talent, support collaboration, and align with sustainability goals. Melbourne’s combination of quality assets, strong talent pool, and global reputation for liveability positions it as one of the most attractive cities for corporates planning their long-term future,” she says.

Global investors are taking note. Victorian transaction volumes reached $2.7 billion in the first half of 2025, accounting for almost a quarter of national deal flow - a sign of liquidity normalising in the market.

Annabel McFarlane, JLL’s Head of Strategic Research said periods of market disruption often present the strongest opportunities.

“With Melbourne assets trading at significant discounts to replacement cost and spreads well above historical benchmarks, the city represents a rare value proposition for long-term capital” McFarlane notes.

Beyond property market metrics, Melbourne’s broader fundamentals remain compelling. It is a leader in advanced manufacturing and AI growth, with manufacturing take-up exceeding 1.5 million sqm since 2020. Demand for data centres is expected to double by 2030, with more than $20 billion of planned investment across Sydney and Melbourne.

The city also continues to outperform in health, education, and innovation. Two of Australia’s top three hospitals are located in Melbourne, anchored by globally recognised biomedical precincts and two universities ranked in the global top 100. Victoria’s startup ecosystem has grown more than 26-fold since 2016, now valued at $132 billion and expanding faster than Sydney, Singapore, and several European innovation hubs.

The Melbourne market is not without its challenges. Tax policy changes and macroeconomic volatility will continue to test confidence. But the weight of evidence points towards resilience and recovery. With population growth accelerating, supply pipelines constrained, and global capital increasingly focused on relative value, Melbourne stands at the beginning of a new cycle.

As McFarlane concludes: “Investors willing to look through short-term uncertainty and appreciate market nuances will find that Melbourne’s fundamentals remain not just intact, but remarkably strong. This is a city whose scale, liveability and innovation capacity will continue to underpin demand - and create opportunity - well into the future.”