Commercial Real Estate Market 2025

Perhaps the first signs of green shoots, or more of the same

As of early 2025, and to be honest perhaps too early to call, Victoria’s commercial real estate market is experiencing a period of cautious optimism, characterised by sector-specific trends and evolving investments dynamics.

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Office Sector: The commercial office market in Melbourne is undergoing significant changes. The Victorian government’s plan to vacate up to 40,000 square metres of CBD office space over the next few years reflects a broader shift towards flexible work arrangements and has implications for vacancy rates and rental values. Despite these challenges, demand for prime office spaces remains steady, particularly from sectors such as legal, financial, education and biomedical industries. The suburban office market is now witnessing a decrease in values from its 2021/2022 levels of value, with trepidation from intending investors within this market segment.

Retail Sector: The retail landscape is showing signs of recovery. The sale of the iconic David Jones store in Melbourne’s Bourke Street Mall for $223.5 million underscores renewed investor confidence in prime Central Business District retail assets. Additionally, the development of retail spaces within the new Metro Tunnel stations, with major brands securing leases, indicates a positive outlook for the sector. In general, the sub $5.0 million retail market segment remains relatively resistant.

Industrial and Logistics Sector: The industrial sector continues to benefit from structural undersupply in key markets. Private investors are increasingly focusing on smaller assets such as industrial units and last-mile logistics facilities, particularly those with value-add potential. Owner-occupiers will continue to compete for these assets, with any downside risk being limited.

Investment Outlook: Anticipated interest rate reductions in 2025 are expected to enhance debt serviceability, potentially leading to increased transaction activity across all sectors. Private investors, in particular, are poised to capitalise, on these favourable conditions, with a focus on assets like neighbourhood centres anchored by essential services and industrial properties with value-add opportunities.

Policy Environment: Recent tax increases and policy shifts have raised concerns about sovereign risk among investors. Industry leaders are advocating for clearer and more predictable government policies to foster a more conducive investment climate in Victoria.

In summary, while challenges persist, particularly in the office sector, Victoria’s commercial real estate market in 2025 is marked by strategic investments and adaptive approaches across various sectors, reflecting a cautiously optimistic outlook.

To discuss any related property matter herein or other issues, please contact
Mark Ruttner, Managing Director

mr@fvg.com.au 0411 419 674

First Valuation Group
Suite 110/181, St Kilda Road, St Kilda, Victoria, 3182
valuations@fvg.com.au