Melbourne Commercial Property Market

The current figure is in the vacancy tracker above, sourced from the Property Council of Australia Office Market Report. As at January 2026, Melbourne CBD office vacancy sits at 19%. That is the highest in Australia and the highest since 1997. However, that headline number is doing a lot of heavy lifting, and it is worth understanding what is behind it before drawing any conclusions about the market.

The vacancy is not evenly distributed. The Eastern Core, including the Collins Street and Bourke Street corridor and prime A-grade stock, is leasing consistently. Knight Frank specifically named Cremorne and the city fringe as among the strongest performing office precincts in Australia for 2026. The 19% figure is primarily driven by secondary CBD towers and Docklands product, where supply has run ahead of demand and incentive packages remain elevated.

In practice, lenders are now treating Melbourne office as two separate markets: prime Eastern Core product, where competitive lending conditions still exist, and secondary CBD or Docklands stock, where the pool is narrower and LVR expectations need to be reset before you exchange. Understanding which category your asset falls into, before you commit, is one of the most important conversations you can have with your broker.

Current sector-by-sector yield ranges are in the yields tracker above, reviewed quarterly from my active Melbourne transaction panel. As a starting point, Melbourne yields are generally slightly wider than Sydney across equivalent asset classes. That spread reflects both the CBD office situation and a broader Melbourne valuation discount that has been running since the pandemic. For investors who can look through the current noise, Knight Frank has called Melbourne a compelling proposition for patient investors precisely because that pricing window does not stay open indefinitely.

Industrial in the South East is the tightest sector by yield, reflecting the sub-3.5% vacancy discussed throughout this page. Neighbourhood retail is actually compressing. JLL recorded yield tightening of 12.5 to 25 basis points in Q4 2025, which was the most meaningful single-quarter retail yield movement I have seen in some time. Medical and healthcare remains stable and defensively priced. CBD secondary office sits at the widest end of the range, and those wider yields are a risk signal, not a value signal. That matters for how lenders read the credit.

For lending purposes, it is worth knowing that lenders apply their own capitalisation rate assumptions in their valuation process. A deal that pencils out at the purchase price can fall over quickly if the lender’s panel valuer applies a wider cap rate. That gap is where a lot of Melbourne commercial finance transactions run into difficulty, and it is why understanding the valuation environment before signing a contract matters so much.

Current Melbourne industrial vacancy figures are in the tracker above. The short answer is that Melbourne’s industrial vacancy rise is primarily a supply story, not a demand story. A significant wave of speculative warehouse completions hit the West and North precincts through 2024 and into 2025, pushing the overall Melbourne average to 4.7% as at H2 2025. Perth and Adelaide, sitting at 1.8% each, have had minimal speculative supply. Importantly, Melbourne’s overall average sits just above the 4% equilibrium threshold that CBRE uses nationally, but only just.

What makes Melbourne particularly interesting is the split between precincts. The South East corridor, covering Dandenong, Clayton and Moorabbin, is running at approximately 3.5% vacancy. That is tighter than the national average and considerably tighter than the Melbourne headline. The North precinct hit 8.6% in Q4 2025 following speculative completions. So when someone says Melbourne industrial vacancy is elevated, the useful follow-up question is: which precinct?

For finance, the precinct distinction matters directly. South East industrial processes easily across my panel and LVR outcomes are strong. West and North industrial requires more attention to lease covenant and WALE. Lenders are applying that scrutiny to credit decisions right now. Owner-occupiers in both precincts are generally well-served regardless, because owner-occupancy provides a covenant layer that investment-only deals do not have.

The most useful comparison right now is that Melbourne sits at a different point in its recovery cycle to Sydney and Brisbane. Sydney’s CBD office market is tighter, at 13.8% vacancy versus Melbourne’s 19%, but both are navigating an elevated supply environment. Brisbane has staged the strongest office recovery of any major Australian city, benefiting from its lower pre-cycle vacancy base and Queensland’s economic momentum. Melbourne has faced additional headwinds from the Victorian state government’s proposed work-from-home legislation, which has introduced investor uncertainty that neither Sydney nor Brisbane is dealing with to the same degree.

However, the comparison that matters most for investors is pricing. Precisely because Melbourne has lagged, commercial assets here are trading at more attractive pricing relative to underlying fundamentals than in Sydney. Knight Frank’s Australian Horizon 2026 report specifically called Melbourne a “darkest before dawn” proposition. The downside risk is now limited, new supply is slowing from 2027, and the entry window is genuine. That window will not last indefinitely.

From a finance perspective, Melbourne lenders maintain different appetite levels across precincts that are not visible on any rate sheet. Knowing which lenders have current appetite in city fringe office versus CBD secondary versus South East industrial, and which have pulled back, requires active panel knowledge rather than a rate comparison. That is a genuine advantage a specialist broker brings to Melbourne transactions right now.

Typical LVR ranges in Melbourne are 60 to 75% depending on asset type, borrower profile and lender. That is a wider band than people often expect, and the difference between 60% and 75% LVR on a $2.5M asset is $375,000 of equity. Getting lender selection right genuinely changes the outcome, not just the interest rate.

As a general rule, owner-occupiers consistently access the most favourable LVR terms, often reaching 70 to 75% across healthcare, professional services and industrial. South East industrial investment properties with strong lease covenants are achieving 65 to 70% LVR from multiple lenders simultaneously. Medical and suburban professional services are similarly well-supported. City fringe office in Cremorne and Richmond, when well-tenanted, is processed at competitive LVRs. Lender confidence in this precinct has improved materially over the past 12 months.

In contrast, CBD secondary office and Docklands strata is the most challenging sector for LVR right now. The lender pool is narrower, valuers are applying more conservative cap rates, and I am regularly seeing valuations come in short of the purchase price in this segment. If you are buying there, I would encourage you to build in a genuine equity buffer rather than just meeting a minimum deposit. For full LVR ranges by sector, see our Melbourne commercial property loans page.

For office, the standout performers are the city fringe precincts: Cremorne, Richmond and Collingwood. Cremorne specifically has been named a top office hotspot for 2026 by Knight Frank, and the vacancy data backs that up. The precinct is running at around 3.8% vacancy while the overall CBD sits at 19%. Rent growth here is outstripping the CBD, tenant demand is active, and lender confidence has improved markedly. The broader city fringe story of technology, creative and professional services tenants choosing Fitzroy, Collingwood and Richmond over the CBD is well established and showing no signs of reversing.

For industrial, South East Melbourne is consistently the strongest precinct on my panel. Dandenong, Clayton and Moorabbin at approximately 3.5% vacancy means genuine lender competition for well-located assets. This is Melbourne’s equivalent of South Sydney infill: established demand, limited new supply and strong owner-occupier competition that underpins pricing even when broader industrial sentiment is mixed. Current vacancy figures for both sectors are in the tracker above.

On the other hand, Docklands and secondary CBD office remain the most challenging precincts for both lender appetite and valuation outcomes. Mixed-use strata on the Southbank residential-commercial boundary also requires careful lender matching. Medical and healthcare assets, however, perform well across virtually all Melbourne suburban precincts, particularly Brunswick, Preston and Moorabbin, due to strong tenant covenants, essential-service demand and consistent SMSF buyer competition.

The most important thing to understand about Melbourne commercial real estate investment in 2026 is that you are buying at a point where the negatives are well-priced and the improving picture is not yet. That is a specific window of opportunity that does not always exist. The taxation headwinds, the WFH legislation uncertainty, the office vacancy headlines: all of those factors are already reflected in pricing. Meanwhile, new supply slows materially from 2027 across both office and industrial, and the rate-cut cycle is improving borrowing conditions for buyers.

For Melbourne industrial investment, the outlook is positive. South East vacancy is tight, West Melbourne is working through its speculative supply cycle with the peak expected in H2 2026, and CBRE’s forward view is for vacancy to tighten as supply slows. Retail has surprised on the upside nationally. Melbourne neighbourhood centres and LFR are showing genuine yield compression and rental growth that was not there 18 months ago. Medical and healthcare remains the most defensive commercial asset class in Melbourne and continues to attract both institutional and SMSF buyer competition.

Office investment is where patience matters most. The deals I am seeing transact are either prime city fringe assets with committed tenants or contrarian CBD plays where the buyer understands the recovery timeline and has the equity to hold through it. If you are buying Melbourne office as a yield story today, the numbers only work with careful asset selection and the right lender. Get finance terms confirmed before you commit to a price.

Current sector-by-sector cap rate ranges are in the yield tracker above, reviewed quarterly from active transactions. Melbourne cap rates are generally wider than Sydney across equivalent asset classes. That spread is exactly what Knight Frank was pointing to when they called Melbourne attractively priced for 2026. Specifically, Melbourne CBD office prime is transacting at 6.00 to 7.25% versus Sydney prime at 5.50 to 6.75%. That difference is the Melbourne discount, and it narrows as the recovery progresses.

For industrial, Melbourne South East is trading at 5.25 to 6.00%, tight and well-supported by the vacancy data. Retail is compressing, as discussed in the market pulse section above. Medical and healthcare sits at a stable 5.50 to 6.75%, reflecting the defensive income profile and low vacancy risk that makes this asset class resilient to market cycles. CBD secondary office at 7.50 to 9.50% is the widest end of the range. Those wider yields represent a pricing adjustment for risk, not an income opportunity to be chased without understanding the underlying vacancy dynamics.

The critical thing to understand is that lenders apply their own cap rate assumptions as part of their valuation instruction. A property that works at an acquisition cap rate can become difficult to finance if the lender’s panel valuer applies 50 to 100 basis points wider in their assessment. This is one of the most common reasons Melbourne commercial finance falls over, particularly in the CBD office segment, and it is why understanding current valuation benchmarks before you sign a contract is essential.

Yes, and Melbourne is actually one of the more active SMSF commercial property markets in Australia. The depth of suburban medical and professional services precincts here is the primary reason. An SMSF can borrow to purchase commercial property using a limited recourse borrowing arrangement (LRBA), subject to the fund having adequate assets and the acquisition satisfying the sole purpose test and other compliance requirements. That structure is well-established in law and I work with specialist lenders for SMSF transactions regularly.

The advantage that most people do not fully appreciate until they have seen it in practice: your SMSF can lease the commercial premises directly to your own business at market rate. This is one of the very few related-party transactions explicitly permitted under superannuation law. Rather than paying rent to an external landlord, your business’s rental payments flow into your super fund instead. Over a 10 to 20 year hold, the tax treatment, at 15% on rental income in accumulation phase and potentially zero in pension phase, makes this an exceptionally efficient structure for Melbourne business owners in medical, professional services and light industrial who plan to own rather than rent their premises.

For Melbourne assets specifically, SMSF commercial property loans typically operate at 65 to 70% LVR, with lender appetite strongest in medical, dental, allied health, professional services offices and light industrial. Inner North Melbourne, covering Brunswick, Preston and Coburg, is the most active SMSF precinct I see in Victoria. Not all lenders on my panel offer SMSF lending and the documentation requirements are more involved than a standard commercial loan, so early conversation is essential. See our SMSF commercial property loans page for more detail.

They are fundamentally different finance propositions right now, and understanding that distinction before you make an offer could save you from a difficult outcome. Melbourne city fringe, covering Cremorne, Richmond, Collingwood and Fitzroy, is in a different credit conversation to the CBD. Vacancy in Cremorne is around 3.8%. Rent growth is outpacing the CBD. Lenders who have pulled back from secondary CBD exposure are actively lending in city fringe because the occupier market data supports it. Valuers are finding evidence. The deals are getting done at reasonable LVRs with mainstream lenders.

The CBD, specifically secondary CBD and Docklands, is carrying the weight of a 19% overall vacancy rate that lenders cannot ignore. Even where a specific asset is leased and generating income, the broader market context shapes how a valuer approaches their assessment and how a lender sets their credit position. That context is currently unfavourable for secondary CBD office in a way it is not for city fringe. Furthermore, mixed-use conversions in Collingwood and Fitzroy require careful lender matching because valuation methodology for these assets varies significantly across the panel.

The practical implication is this: two assets in nominally similar Melbourne inner-suburban locations can have very different lending outcomes depending on asset type, lease structure and which lender you approach. A well-tenanted Cremorne office building is not the same credit as a Docklands strata suite, and a Brunswick medical suite is not the same credit as a mixed-use Richmond conversion. The postcode alone tells you very little. If you are unsure where your target asset sits on that spectrum, that is precisely the conversation I would encourage you to have before proceeding.