The Melbourne CBD unit crisis

While the rest of Melbourne’s property market is in the first stages of recovery and growth, the Melbourne CBD unit market continues to struggle.

The Melbourne CBD unit market is the second largest in Australia, with over 28,000 units, but it’s also in trouble, with prices falling by 10% over the last five years.

There’s no sign of recovery in sight, either as prices fell by around 4% last year and weekly asking rents have not increased for two years.

There’s clearly something very different about this market.

Why the Melbourne CBD unit market is different from others

Immediately after the COVID years, the inner Melbourne unit market was booming, with overseas investors and locals competing for new and off the plan apartments.

A large number of these were not investors seeking traditional outcomes from growth and cash flow, but had quite different expectations.

Many overseas investors locked up their units on completion as they sought security and long-term capital appreciation rather than immediate rental income.

According to the ABS, nearly 6,000 units in the Melbourne CBD fell into this category at the last Census.

At the same time, the Melbourne CBD experienced a boom in demand for short stay Airbnb and Stayz type rentals.

Many local investors purchased units and turned them into high cash flow generating short term rentals.

Both strategies resulted in a massive shortfall of units available for long term tenancies in the CBD, but the Victorian State Government attempted to remedy this situation by punishment rather than reward.

The government introduced a raft of new taxes and levies

To encourage investors to swap from short stay to long term lettings, the government introduced a “Short Stay Levy" of 7.4% on the total booking fee for short term rentals.

To encourage overseas investors to open their locked up units to renters, they introduced a "Vacant Residential Land Tax" which increased from 1% to 3% of the capital improved value of the property each year that a property was left vacant.

And finally, to discourage overseas investors altogether, they introduced an "Absentee Owner Land Tax Surcharge" of 4% of the site value, levied each year on top of existing land tax for owners not resident in Australia.

The new taxes and levies resulted in unintended consequences

The aim of these measures was to force investors to open up their units for long term rentals, but many overseas owners and short stay accommodation providers decided to avoid these imposts altogether by selling, causing a massive investor exodus.

The number of units listed for sale in the Melbourne CBD has doubled over the last twelve months and falling sale prices now motivate new investors to buy elsewhere.

Melbourne CBD units are amongst the worst performers in Greater Melbourne

This table reveals the extent of the damage, by comparing performance of two bedroom units in the Melbourne CBD during 2025 to other inner urban unit locations.

While virtually all inner unit markets are in growth, Melbourne’s CBD unit prices are in decline, and the median sale price for two bedroom units is one of the lowest in Melbourne.

Melbourne's unit prices have a huge amount of catching up to do

The irony is that these taxes and levies don't impact genuine investors willing to provide long term rentals, so once the listing overhang reduces and the market readjusts, the CBD unit market should begin to recover.

It has a long way to go.

According to PropTrack, two bedroom units in the Melbourne CBD have the lowest median value at just $520,000 of ALL State capital city CBD markets.

The median value of a two bedder unit in Hobart’s CBD is $920,000 which is 77% higher than Melbourne, while in Brisbane CBD it is $825.000, nearly 60% more than in Melbourne.

In Sydney’s CBD, the median value for two bedroom units is $1,225,000, which is a massive 136% higher than that of Melbourne.

Either Melbourne CBD unit prices are set to boom, or two bedroom unit prices in the other capital cities are way over the mark and about to crash.

Given the issues that have beset the Melbourne CBD unit market in recent years, the answer is obvious.

About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.