More Melbourne investors are looking past the house-and-land playbook and asking a sensible question: could a commercial property do a better job for me? Higher yields, longer leases and tenants who cover the outgoings are an appealing mix, particularly while residential holding costs in Victoria keep climbing.
Commercial property can be a strong asset. It also runs on a different set of rules to residential, and the mistakes are more expensive. This guide walks through how buying commercial property in Melbourne actually works, what drives value, and where buyers most often get caught.
Commercial is a different game to residential
With a house or apartment, the value is largely set by comparable sales and owner-occupier demand. With commercial property, the income does most of the heavy lifting. You are buying a lease and a tenant as much as you are buying bricks and land, and the price is driven by the strength and length of that income.
That changes almost everything: how the property is valued, how it is financed, how it is taxed, and how easily you can sell it later. Get comfortable with those differences before you start, not after you have signed.
What actually drives commercial value
A handful of factors do most of the work.
Yield. Commercial is priced on return. In Melbourne through 2026, industrial in the south-east is trading around 5.25 to 6.00 per cent, medical and healthcare around 5.50 to 6.75 per cent, neighbourhood retail around 5.00 to 6.50 per cent, and prime CBD office around 6.00 to 7.25 per cent. Compare that to gross residential yields that often sit near 3 per cent, and the income appeal is obvious. Higher yield, though, usually signals higher risk, which is why secondary CBD office is out at 7.5 to 9.5 per cent while it carries record vacancy.
The tenant. In commercial, the tenant is the investment. A national brand, a government department or a medical group on a long lease is a very different proposition to a single small operator with twelve months left. This is called the tenant covenant, and assessing it properly is one of the most important jobs before you buy.
The lease. Read every line. The lease term and the weighted average lease expiry (WALE) tell you how long your income is secured. The rent review mechanism (fixed, CPI or market) tells you how it grows. And the outgoings clause tells you who pays council rates, land tax, insurance and maintenance. On a net lease the tenant covers most of those costs. On a gross lease you do. That single distinction can move your real return by a wide margin.
Location, land and zoning. Position still matters, but for different reasons: exposure and access for retail, transport and clearance for industrial, catchment for medical. The amount of underlying land you are buying affects long-term growth and any future repositioning, and the zoning sets what the site can and cannot become.
The numbers you need to plan for
Commercial buying has a heavier cost and finance profile than residential, so budget for it early.
Deposit and finance. Lenders typically want a larger deposit on commercial, often in the order of 30 to 35 per cent, and commercial loans usually carry shorter terms and different conditions to a home loan. Finance approval leans heavily on the quality of the lease and tenant, not just on you.
GST. Commercial property is generally subject to GST, though many investment sales proceed as a going concern and are GST-free when the right conditions are met. It needs to be handled correctly in the contract, so this is one to run past your accountant.
Stamp duty and the CIPT reform. Victoria is phasing stamp duty out of commercial and industrial property. Under the Commercial and Industrial Property Tax (CIPT), which began on 1 July 2024, a property that transacts pays stamp duty just once, and then, ten years later, moves to an annual tax of 1 per cent of its unimproved land value with stamp duty gone for good on future sales. First purchasers can pay that final stamp duty upfront or take a government transition loan (available on purchases up to $30 million). It is a genuine structural shift, and over a long hold it changes the maths in commercial’s favour.
Land tax. Commercial land still attracts land tax, and on a net lease the tenant often bears it, which is part of the appeal for a landlord.
None of the above is tax advice. The treatment depends on your circumstances and structure, so confirm the detail with the State Revenue Office and your own accountant before you commit.
The risks to weigh honestly
Commercial rewards come with real risks, and pretending otherwise helps no one.
Vacancy is the big one. When a commercial tenant leaves, the property can sit empty for months rather than weeks, and you carry the outgoings while it does. Melbourne’s CBD office vacancy sitting around 19 per cent, its highest level since 1997, is a live reminder that not all sectors are equal. Tenant default, a lease you inherit on below-market terms, and thinner liquidity when you come to sell are all part of the picture. Commercial also tends to deliver strong income with more modest capital growth than well-located residential, so be clear about which one you are actually buying for.
The short version on asset classes
Office, retail, industrial and medical each behave differently, and the right one depends on your goals and appetite for risk. Industrial and healthcare have been the defensive performers into 2026, while parts of the office market are under real pressure. We cover each in detail in types of commercial property explained, and the bigger picture of the shift itself in why Victorian investors are moving to commercial.
Where a buyer’s advocate earns its keep
Commercial is a market where the information sits with the sellers and their agents, and where a single overlooked clause can undo a good-looking yield. Working with a commercial buyers advocate in Melbourne puts an independent, buy-side team on your side of the table: assessing the tenant covenant and lease, checking zoning and permitted use, scrutinising the outgoings, testing the price against the real market, and negotiating on your behalf. At LP Advisory we act on the buy side only, so there is no conflict, and we are property advocates, not business brokers.
If you are weighing commercial against a residential investment, or simply want a second, independent read on a deal in front of you, get in touch. It is a lot cheaper to get the analysis right before you sign than to learn the lease the hard way afterwards.
Frequently asked questions
Is commercial property a good investment in Melbourne right now?
It depends on the sector and the specific asset. Into 2026, industrial and medical property have been the more defensive performers with tighter vacancy, while secondary CBD office carries record vacancy and higher risk. Commercial can offer materially higher yields than residential, but income strength and tenant quality vary widely, so each deal has to be assessed on its own merits.
How much deposit do you need to buy commercial property?
Lenders typically require a larger deposit than for residential, often around 30 to 35 per cent, and commercial loans carry shorter terms and stricter conditions. Approval depends heavily on the strength of the lease and tenant, not just the borrower.
Do you pay stamp duty on commercial property in Victoria?
Under the Commercial and Industrial Property Tax reform that began on 1 July 2024, eligible commercial and industrial property pays stamp duty once, then transitions after ten years to an annual 1 per cent tax on unimproved land value, with stamp duty removed on future sales. Your accountant and the State Revenue Office can confirm how it applies to a specific purchase.
What is a net lease?
On a net lease, the tenant pays most of the property’s outgoings, such as council rates, land tax, insurance and maintenance, on top of the rent. On a gross lease, the landlord covers those costs. It is one of the biggest factors in a landlord’s real return, so always check which applies.
This article is general information, not financial, tax or legal advice. Figures are current at the time of writing and can change. Speak to a licensed adviser and the State Revenue Office about your own situation.
