Melbourne’s central business district is facing a gap between the homes it needs and the homes being built.
The City of Melbourne estimates that 21,600 additional dwellings will be required by 2028. The current apartment pipeline holds only 8,900 new units, which leaves a supply shortfall of 60%. That mismatch sits at the center of a broader argument about why apartments in the Melbourne CBD may hold strong potential for price growth and rental returns.
The figures come from a report titled “Melbourne CBD Market Outlook 2025,” which Far East Consortium commissioned from the firm Urbis. Far East Consortium is one of Australia’s most respected developers in Melbourne. The company wanted a clearer picture of how the city’s property market works, what shapes buyer behavior, and where the economy is heading in 2025 and the years after. Melbourne has a growing population, major infrastructure projects under way, and robust demand from renters. Together these make it one of the most attractive property markets in Australia, and anyone navigating it needs to understand what makes CBD apartments such a resilient asset class.
Population is the first driver. According to the report, Melbourne is on track to pass Sydney as Australia’s largest city by 2032, and its population is projected to reach 7.45 million by 2040. Immigration has fueled steady growth across the past decade. In 2024 alone, Melbourne received 446,000 new arrivals from overseas, and each of them adds to demand for housing.
A property analyst with ten years of experience studying market cycles offers a view on what this means. In the analyst’s words, scarcity of supply is the ultimate foundation of long-term capital appreciation. When demand outruns supply by a margin this wide, city real estate tends to command premium valuations.
Public spending is the second driver. Victoria has committed to a $107 billion infrastructure plan, and the projects within it strengthen both Melbourne’s livability and its standing as a destination for investors. The same analyst says that, in their experience, property values rise faster in corridors directly affected by government capital spending. Five projects stand out.
The Melbourne Greenline, due in 2025, is a $224 million project that will transform public space along the Yarra River. It creates a 4-kilometer route with Improved recreation and new opportunities for events.
The West Gate Tunnel Project, also due in 2025, is a major road upgrade that gives drivers an alternative to the West Gate Bridge. It is meant 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 join 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. It adds new public spaces, restaurants, and activities to draw both residents and visitors.
The Suburban Rail Loop, planned for 2035, is a rail project that 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. In the CBD, apartments cost far less than detached houses, which is one of the advantages of buying an apartment instead of land. In 2024, the median apartment price in the Melbourne CBD was 56% below the median for a detached house, so apartments are the more accessible option for many buyers.
Rental figures point the same way. The median weekly rent in the CBD reached $750 in November 2024, compared with $690 in 2023, a year-on-year rise of 9%. Vacancy stayed low, averaging 2.4% across 2024. Newly built CBD apartments delivered gross rental yields of 4.8%, which adds to their appeal for investors.
There is also a limit on what can be added. Opportunities for new development within the CBD grid are becoming scarcer, and existing apartments are therefore 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 wider economy supports all of this. Australia’s economic fundamentals are strong, and the unemployment rate stood at 4.0% in late 2024, well under the 10-year average of 5.3%. Consumer confidence has recovered as well. The ANZ-Roy Morgan Index climbed 12 points over the year to 86.4 in December 2024. Inflation fell to 2.8% in September 2024. Those conditions create a favorable climate for property investment.
Interest rates may also move in buyers’ favor. Major banks, including ANZ and NAB, forecast rate cuts that should lower borrowing costs and stimulate more activity in the property market. By December 2025, the Reserve Bank of Australia’s cash rate is expected to fall to between 3.35% and 3.85%, which would Improve affordability for investors seeking Melbourne CBD apartments.
Taken together, the findings describe a market where a fast-growing population, large public works, and strong rental performance converge, while the limited room for new building inside the CBD grid keeps existing apartments positioned for capital growth. Location remains one of the most critical factors for any buyer in Melbourne.
So the central question for anyone weighing this market is how long a 60% supply gap can persist before it shows up in prices and rents.
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