Melbourne’s central business district needs far more homes than it is on track to get.
The City of Melbourne puts the number of additional dwellings required by 2028 at 21,600. The apartment pipeline contains just 8,900 new units, leaving a shortfall of 60%. That gap is the starting point for an argument that CBD apartments could offer strong potential for price growth and rental returns.
The numbers come from a report titled “Melbourne CBD Market Outlook 2025,” prepared by the firm Urbis on behalf of Far East Consortium, one of Australia’s most respected developers in Melbourne. The developer wanted a sharper view of how the city’s property market operates, what influences buyers, and where the economy is headed in 2025 and beyond. A growing population, large infrastructure projects now under way, and robust rental demand make Melbourne one of the most attractive property markets in the country. Anyone moving through it needs to understand why CBD apartments have proven such a resilient asset class.
Population comes first. The report projects that Melbourne will overtake Sydney as Australia’s largest city by 2032 and reach 7.45 million residents by 2040. Immigration has driven steady growth over the past decade. In 2024 alone, 446,000 new arrivals came to Melbourne from overseas, and every one of them adds to housing demand.
A property analyst with ten years of experience studying market cycles puts this in context. Scarcity of supply, the analyst says, is the ultimate foundation of long-term capital appreciation. When demand outpaces supply by a margin this large, city real estate tends to command premium valuations.
Government spending is the second driver. Victoria has committed to a $107 billion infrastructure plan, and its projects lift both Melbourne’s livability and its appeal to investors. The same analyst says that, in their experience, property values climb faster in corridors directly touched by public capital spending. Five projects stand out.
The Melbourne Greenline, due in 2025, is a $224 million project to transform public space along the Yarra River. It creates a 4-kilometer route, with Improved recreation and new opportunities for events.
Also due in 2025, the West Gate Tunnel Project is a major road upgrade offering drivers an alternative to the West Gate Bridge. It is intended to ease congestion and Improve links between Melbourne’s west and the CBD.
The North East Link, scheduled for 2028, is the largest road project in Victoria’s history. It will connect key arterial roads in the city’s north and east, shorten travel times, and support urban growth across the region.
The Queen Victoria Market Renewal, set for 2029, is a $268 million revitalization of one of Melbourne’s best-known landmarks. New public spaces, restaurants, and activities are meant to draw residents and visitors alike.
The Suburban Rail Loop, planned for 2035, will connect key suburbs and cut commute times. It is also expected to lift housing demand near transport hubs such as Clayton and Sunshine.
Affordability is the third driver. Apartments in the CBD cost far less than detached houses, one of the benefits of buying an apartment rather than land. In 2024, the median apartment price in the Melbourne CBD sat 56% below the median for a detached house, making apartments the more accessible choice for many buyers.
Rental data tells a similar story. The median weekly rent in the CBD hit $750 in November 2024, up from $690 in 2023, a year-on-year increase of 9%. Vacancy stayed low, averaging 2.4% through 2024. Newly built CBD apartments delivered gross rental yields of 4.8%, which strengthens their appeal for investors.
Supply also faces a physical ceiling. Opportunities for new development within the CBD grid are growing scarcer, so existing apartments are likely to see significant capital appreciation. The report states that “constraints on new supply should lead to growth in capital values as demand continues to outpace supply”.
The broader economy backs all of this up. Australia’s economic fundamentals are strong, with unemployment at 4.0% in late 2024, well below the 10-year average of 5.3%. Consumer confidence has rebounded too: the ANZ-Roy Morgan Index rose 12 points over the year to 86.4 in December 2024. Inflation eased to 2.8% in September 2024. Together, these conditions create a favorable climate for property investment.
Interest rates may tilt toward buyers as well. Major banks, including ANZ and NAB, forecast rate cuts that should reduce borrowing costs and spur more activity in the property market. By December 2025, the Reserve Bank of Australia’s cash rate is expected to drop to between 3.35% and 3.85%, which would Improve affordability for investors looking at Melbourne CBD apartments.
Put together, the findings describe a market where rapid population growth, large public works, and strong rental performance converge, while limited room for new construction inside the CBD grid keeps existing apartments positioned for capital growth. Location remains one of the most critical factors for any buyer in Melbourne.
That leaves one question hanging over the market: how long can a 60% supply gap last before it shows up in prices and rents?
If you want more reporting built on the numbers behind the biggest property and economic stories, hit the subscribe button so the next one finds you. Give the video a like if it was useful, and turn on the notification bell so new videos reach you the moment they go live.”
