Commercial Property: A Market In Transition

Commercial real estate across Victoria is entering a period of transition. The market is not collapsing by any means, but the dynamics that once defined the sector are shifting. For investors, understanding those changes is becoming increasingly important.

For much of the past decade, industrial property has been the standout performer. Factories and warehouses held their value through COVID, and for several years afterwards, demand remained extremely strong.

Over the past 12 months, however, that momentum has eased. Industrial property is still performing better than most other commercial sectors, but the market has cooled compared with the pace we saw up until mid-2025. A combination of economic uncertainty, interest rate pressures and broader global factors has made investors and businesses a little more cautious.

Despite that cooling, one factor continues to support the sector. There is still relatively limited new industrial stock being built across many parts of Victoria. That shortage of supply is helping maintain stability in the market.

Interestingly, one of the biggest drivers in the industrial space right now is owner-occupiers. Businesses looking to secure their own premises are finding it difficult to locate suitable factories, and that is creating strong competition for available properties.

Ten years ago, investors preferred industrial assets that already had a long-term lease in place. Today, we are seeing the opposite in some cases. Vacant factories can attract strong interest because they allow businesses to move in immediately, and those properties often achieve excellent sale prices.

While the industrial sector remains relatively healthy, the office sector continues to face significant challenges.

Six years on from the pandemic, office vacancy rates in many parts of Melbourne remain close to what we saw during COVID. The shift to hybrid work has fundamentally changed how businesses use office space.

Many companies simply do not need the same size footprint they once did. Employees are often working from home several days a week, which means traditional office demand has reduced.

One clear trend that has emerged is decentralisation. CBD office vacancy rates remain high, while suburban offices are performing somewhat better. Businesses that still require physical workspaces are often choosing locations closer to where their staff live, where commuting is easier, and parking is more accessible.

Another major change is the importance of amenities. Office buildings that provide facilities such as bike storage, showers, shared breakout areas, and lifestyle features are leasing far faster than those that offer little beyond the basic workspace. The traditional model of providing four walls and expecting tenants to come has largely disappeared.

Retail sits somewhere in the middle of the commercial landscape. Its performance depends heavily on the strength of the tenant and the quality of the location.

Retail strips near transport hubs, supermarkets and high foot traffic areas are still performing well, particularly when they are occupied by strong operators. Major food chains and well-known retail brands continue to attract interest from investors.

At the same time, retail is evolving. Physical stores increasingly need to provide an experience that cannot be replicated online.

Businesses that allow customers to interact with products, try things out or engage with the brand in a meaningful way are far more likely to succeed.

Looking ahead, infrastructure projects across Victoria will also play a role in shaping commercial demand. Developments such as the Metro Tunnel and the Suburban Rail Loop are expected to improve connectivity and support growth in outer suburban and regional areas.

We are already seeing national retailers and food chains expanding into locations further from Melbourne’s centre, including major regional centres such as Geelong. As population growth continues to push outward, those markets will become increasingly important.

Commercial property in Victoria is not standing still. Industrial is adjusting, offices are being redefined, and retail is evolving. For investors, the key is recognising that the market is changing and positioning themselves to move with it rather than against it.