Melbourne Commercial Property State of Play: Charter Keck Cramer

Melbourne Commercial Property State of Play: Charter Keck Cramer

6 December 2019

In Charter Keck Cramer’s latest Commercial Property State of Play in Melbourne report, a number of key economic factors continue to affect Melbourne’s office, retail and industrial markets.  

Below are some key insights from the report.


Global economic growth remains subdued, with some volatility on the downside as uncertainty and general negative sentiment remains, primarily around geopolitical tensions.

Such uncertainty has the potential for global markets to slide into recessionary thinking.

Australia’s growth position is not too dissimilar to G7 countries having slowed itself, however it appears to be gaining some momentum on a stronger export scenario given the lower level of the Australian dollar.

Australia is also benefiting from the likes of China, our major trading partner, which in response to its slowdown, is implementing stimulus measures and thereby increasing appetite for our resources.

Much of Australia’s drag on economic performance has been due primarily to domestic issues, with drought conditions stagnating the agricultural sector and a cyclical end to pricing in housing markets, particularly in NSW and Victoria.

Victoria’s economic conditions continue to be amongst the strongest in the country, with key cyclical drivers supporting the diversified and largely non-mining economic base.

Robust population growth, driven by overseas and interstate migration continues to support Victorian economic growth, helping explain job growth and the absorption of strong office development completions.

It has also provided for substantial public investment in transport and social infrastructure as the Government looks to alleviate the pressures around such strong population growth.


Melbourne’s office market is in a strong position. The office sector in central Melbourne, supported by net face rental growth and some relief in the levels of rental incentives, is now successfully competing for sites previously intended for residential apartment proposals, particularly as the apartment market comes off its peak.

Strong underlying fundamentals in Melbourne on the back of the State’s strong population growth and the resultant expansionary jobs market for industry sectors requiring office accommodation, have been reflected in substantial levels of positive net absorption recorded across the geographic markets.

Evolving tenant requirements continue to impact positively on the office sector, with demand for co-working and collaborative environments over shared accommodation now an established trend, with both domestic and foreign providers expanding rapidly across the Melbourne CBD and fringe markets.

The investment market is strong, including in the non-CBD markets, with quality investment grade stock sought after by both domestic and foreign investors.

With a low-interest rate and low return environment expected to continue in the medium term, the investment market is likely to be limited only by the availability of stock, as a substantial weight of capital competes for a limited number of core assets.


Recent interest rate cuts and income tax breaks mid-year appear to have provided the opportunity for consumers to repair household balance sheets as opposed to spending the increase in their disposable income. Importantly however, retail trade remains positive.

Concerns about the strength of the national economy, in conjunction with insipid wage growth and weaker housing market conditions in both Sydney and Melbourne, have provided for an environment which is generally not conducive to an increase in volumes of discretionary retail spend.

Cuts to the official cash rate by the Reserve Bank are being interpreted by cautious consumers that the domestic economy requires support in the short term to deal with the increasing headwinds and the retail market remains challenged as a result.

Victoria’s economic conditions comparatively remain robust, leading the nation in population and employment growth as well as retail trade growth.

Despite the stronger retail trade growth in Victoria, competitive pressures in the retail property market remain, particularly on discount department stores and apparel traders following the arrival of international tenants in Australia. 

For owners and managers there is a shift towards more experiential retailing, focusing on food & beverage, dining and entertainment facilities.

Retail property remains a tightly held asset class, with premiums continually paid for ownership opportunities.


Melbourne’s industrial market has a diversity of occupants, reflective of the broad Victorian economic base, and remains the largest of all Australia’s capital cities in terms of land stock and built floorspace. 

Melbourne’s industrial market is central to Australia’s manufacturing industry which, although diminishing in significance to the national economy, is still a large driver of industrial markets particularly as it evolves from traditional industries such as automotive, clothing and footwear, and into the more niche markets of food and beverage manufacturing.

Melbourne also plays a primary role as the distribution centre for the country with the Port of Melbourne being the largest container port in Australia. The sector is supported by high quality transport infrastructure, particularly for road freight.

The industrial property market continues to evolve and mature through increased integration with e-commerce and warehousing and logistics. 

The emphasis in providing efficiencies through new industrial logistics hubs and facilities, in support of the perceived growth expected in logistics via the e-commerce industry, has seen increased demand in industrially zoned land in recent times.

The depreciation of the Australian Dollar coupled with historical low interest rates is expected to prolong the high levels of purchaser demand from both local and offshore investors as well as owner occupiers.