While elevated interest rates, development feasibility pressures and Victoria's property tax settings continue to weigh on investment decisions, market conditions are increasingly favouring buyers with strong equity positions, longer investment horizons and a clear strategy for managing risk.
According to Cushman & Wakefield, the next 12 to 24 months will be characterised by a widening divide between assets offering secure income, quality occupation and redevelopment potential, and those burdened by leasing uncertainty, capital expenditure requirements or challenging development economics.
Recent Melbourne CBD office transactions have reflected discounts of approximately 45 per cent to peak values recorded in 2021 and 2022, while fringe office assets have traded at discounts of around 49 per cent.
Development sites in Southbank, South Yarra and Carlton have similarly experienced repricing of between 28 and 36 per cent, creating potential entry points for well-capitalised investors seeking exposure to Melbourne's longer-term recovery.
Cushman & Wakefield International Director and Co-Head of Investment Sales Australia, Daniel Wolman, said the market was shifting from a period dominated by price correction to one increasingly defined by asset selection and investor conviction.
"Melbourne is presenting some of the most compelling acquisition opportunities we've seen in more than a decade, but investors are becoming far more discerning about where they deploy capital.
"The availability of capital isn't the issue. It's whether an asset can demonstrate sustainable income, a credible leasing strategy or genuine future development potential. Buyers are prepared to move decisively when those fundamentals align, but they're no longer willing to absorb uncertainty without an appropriate adjustment in price.
"Over the next 12 to 24 months, we expect the gap between high-quality, well-positioned assets and those carrying unresolved risk to become even more pronounced."
Despite broader concerns surrounding Melbourne's office market, leasing conditions remain highly concentrated rather than uniformly weak.
Melbourne CBD headline office vacancy currently stands at 18.9 per cent, although just 8 per cent of buildings account for half of all vacant space, while 37 per cent of buildings remain fully leased.
The divergence is influencing investment appetite, with well-leased properties continuing to attract interest while buildings facing significant vacancy, short lease expiries or substantial refurbishment requirements are encountering greater pricing pressure.
Development feasibility also remains a significant challenge. Of the 19 development sites resold during 2026, only six recorded capital gains exceeding 10 per cent, while aggregate resale values were approximately 4 per cent below previous purchase prices.
Higher construction costs, slower off-the-plan sales and tighter financing requirements are placing additional pressure on developers, although planning reforms and a more constrained future development pipeline could improve the longer-term investment outlook. Meanwhile, international capital is emerging as a potential catalyst for renewed transaction activity.
Cushman & Wakefield's recent Asia Capital Services roadshows identified more than $2 billion in offshore capital targeting Australian real estate over the coming 12 to 24 months, while Asian investors accounted for more than $320 million in transactions completed by the agency during the first half of 2026.
However, Victoria's property tax framework remains a consideration for international investors, particularly the 4 per cent Absentee Owner Surcharge applying to commercial property.
Mr Wolman said “With just 17 days until the Victorian state election, there is growing optimism that changes to the state's property tax regime, particularly the potential removal or reduction of the Absentee Owner Surcharge on land tax, could provide a much-needed boost to Victoria's investment sales market.
“Any meaningful reform would help restore investor confidence, improve Victoria's competitiveness in attracting domestic and offshore capital, and encourage greater transaction activity. After a challenging period for the market, greater tax certainty could be the catalyst for renewed investment momentum in 2027.”
Cushman & Wakefield International Director and Co-Head of Investment Sales Australia, Oliver Hay, said significant capital was actively assessing opportunities, although certainty around taxation, asset performance and execution remained critical to converting interest into transactions.
"There's a substantial pool of domestic and international capital looking for opportunities in Australia, and Melbourne is firmly on the radar given the level of repricing we've experienced.
"Investors are recognising that periods of market dislocation can create exceptional long-term buying opportunities, particularly where the underlying location and property fundamentals remain strong.
"However, certainty is paramount. Offshore investors are closely watching Victoria's property tax settings, while domestic buyers are increasingly focused on income security, capital expenditure and the ability to complete transactions. The assets that address those concerns will attract the strongest competition."
Evidence of selective demand is already emerging across the market. The Midtown property at 246 Bourke Street attracted 125 enquiries and 13 offers, highlighting continued competition for scarce, well-located opportunities.
Owner-occupiers are also becoming an increasingly influential source of demand, particularly in Melbourne's strata office market.
Level 26 at 130 Little Collins Street recently sold to an owner-occupier for approximately $18,644 per sqm with vacant possession, reflecting the willingness of businesses to pay premium prices to secure quality premises for long-term occupation.
With Melbourne's CBD office development pipeline expected to thin beyond 2026, opportunities to reposition well-located secondary buildings into modern, experience-led workplaces could attract increasing investor attention.
While higher borrowing costs and economic uncertainty are likely to remain influential, Cushman & Wakefield expects transaction activity to become increasingly selective rather than uniformly subdued.
For investors able to look beyond short-term market conditions, the combination of asset repricing, limited future supply and growing pools of deployable capital presents a potentially significant window of opportunity.
The defining factor will be confidence in the underlying asset, with secure income, strong locations and credible future potential expected to separate the market's most competitive opportunities from those facing further pricing adjustments.
