It consistently ranks among the world’s most liveable cities, it’s poised to become Australia’s biggest city and it can already claim Australia’s largest industrial and CBD office markets.

Melbourne’s got staying power, with a grab-bag of attributes investors can consider as the city surges forward from the economic shock of the pandemic, real estate analysts say.

“One of the strongest population and GDP growth projection combinations of any city in a global top 15 economy offsets weaker demand for offices after the pandemic, and is a huge driver of the demand we’re seeing for homes and warehouses,” says Annabel McFarlane, head of strategic research, JLL.

Melbourne’s population growth is set to create a requirement for 550,000 square metres of office space and 2.6 million sqm of industrial space over the next five years, according to the JLL whitepaper The Real Melbourne Narrative. The city will also need more than 200,000 new homes.

The relatively lower cost of housing than most other capital cities, office rents, and industrial rents create a tantalising proposition for investors. And despite Victorian government tax changes for foreign owners, that cohort of investor still poured about $880 million of capital into Victoria over the first three quarters of 2024.

Read below for a closer look at Melbourne’s real estate performance by sector.

With 29.5m sqm of warehouses versus Sydney’s 23.1m sqm, Melbourne is the largest logistics and industrial market.

Projections suggest demand for 2.6m sqm of industrial space over five years, however, by 2028 there will be a 1m sqm shortfall of required stock, JLL has found. Plans to double container throughput to 6m TEU (a measurement of container capacity; A 20-foot container is 1 TEU) each year by 2035 at Australia’s largest port, the Port of Melbourne, will also boost demand.

“It costs half as much to lease a warehouse in Melbourne compared to Sydney, which has many large occupiers believing Melbourne will become the preferred location for national distribution centres,” says James Jorgensen, JLL’s head of logistics and industrial, Victoria.

While Melbourne is experiencing challenges with planning and infrastructure delivery, those challenges are far greater in Sydney, Jorgensen notes. Additionally, offshore capital is currently carrying a foreign owner’s land tax surcharge. “But that just means local capital is in pole position.”

Greystar, Home, Local and Mirvac all delivering major projects in the build to rent (BTR) sector in Melbourne is evidence of its ability to support housing delivery at scale, says Jack Bergin, JLL’s head of living.

Melbourne has 60% of Australia’s overall BTR supply in part due to very high migration and the availability of well-located high-density sites in and around the CBD.

Still, it’s not enough to offset the decline in build-to-sell housing and will provide only limited relief to the rental market. Total inner Melbourne housing supply between 2024 and 2028 is expected to be only around 4,400 per annum – around 25% less than in the decade to 2023.

“Despite short-term headwinds for the housing market until interest rate cuts arrive, developers remain confident in a simple assumption: that total housing supply is going to fall well short of underlying demand from strong population growth over the next five years,” Bergin says.