Melbourne’s commercial property market has been under intense scrutiny in recent years, with headlines focused on high office vacancy, taxation settings, and state debt.
Yet new research from Knight Frank argues the city’s long-term investment case is stronger than sentiment suggests.
The firm’s This Is Melbourne report highlights the fundamentals driving that view: nation-leading population growth, economic diversity, major infrastructure investment and relative pricing advantages.
We spoke to Knight Frank Partner and Head of Research & Consulting, Dr Tony McGough, about why Melbourne still stacks up for investors prepared to take a longer view.
Population Growth Anchors Investment Case
If one measure underpins Melbourne’s investment case, it is scale.
Knight Frank reports the city has expanded at an average annual rate of 1.8% since 2000, outpacing every advanced economy globally.
In 2025 alone, Melbourne added 123,500 residents, the largest annual increase of any Australian capital.
By the 2030s, it is forecast to overtake Sydney as the nation’s largest city.
Dr McGough said international migration continues to drive that momentum. “Many of these people are linked to international students arriving, being educated and staying,” he said.
“That means there is a continual supply of young, well-educated people who are wanting to work and settle down arriving in our city.”
Relative Pricing Reopens Office Debate
Long under pressure, Melbourne’s office market is now being repriced in investors’ favour. Knight Frank’s research shows office rents sit 46% below Sydney and 13% below Brisbane, creating a yield differential not seen in decades. Dr McGough said the relative pricing gap was difficult to ignore.
“With cheaper land, construction costs and rents, and the positives of strong population growth and investment in the city, we have a yield spread in Melbourne offices compared to Sydney that’s the largest in decades and a growing one in industrials,” he said.
“Now investors are looking at the positives with attractive pricing added on.”
Industrial Depth and Retail Recovery
Melbourne’s industrial platform adds further weight. The city holds 34 million square metres of industrial stock, with capacity to expand - a scale few capitals can match. “Industrials was a story of e-tailing,” Dr McGough said. “Warehousing, storage, and retail delivery during Covid drove massive demand.”
CBD retail conditions are also strengthening, with Knight Frank reporting tightening vacancy and renewed expansion from premium brands as activity returns to the city centre.
“CBD retail is still benefiting from the post-Covid rebound,” he said.
A $200 Billion Infrastructure Engine
Melbourne’s infrastructure pipeline also underpins its positive medium- to long-term outlook. More than $200 billion is slated for transport investment between 2014 and 2036, according to Knight Frank. This multi-billion-dollar spend will reshape connectivity across metropolitan Melbourne.
Projects including the Metro Tunnel, North-East Link and major arterial upgrades are unlocking new precincts, improving freight efficiency and reinforcing the city’s long-term urban footprint.
Dr McGough said the scale of investment is nationally significant.
“The increased connectivity will, of course, be helpful in so many ways,” he said.
Investors Urged to Look Ahead
Mr McGough said Melbourne’s core strengths would reward investors willing to take a longer view. He said negativity around taxation and government debt had been overplayed.
“The positives of Melbourne have often been overlooked. Now pricing is so attractive it has drawn investor interest,” he said.
“All the elements are in place for strong medium-term performance: strong growth, limited new commercial supply, high construction costs, shrinking vacancy, and improved returns.”
