“Commercial property” covers a wide spread of assets that behave very differently. An industrial shed leased to a logistics operator and a secondary CBD office suite are both commercial, yet their risk, income and growth stories have almost nothing in common.
If you are weighing up buying commercial property in Melbourne, understanding the main asset classes is the first step. Here is how each one stacks up, with the honest pros and cons from an investor’s point of view.
Industrial and logistics
Industrial has been the standout performer, and it remains a favourite for good reason. Think warehouses, distribution centres, workshops and smaller strata units.
Pros. Tight vacancy underpins income: Melbourne industrial vacancy has been sitting around 4.7 per cent, and closer to 3.5 per cent in the south-east. Yields have generally held around 5.25 to 6.00 per cent. Buildings are simple and cheap to maintain, leases are often long, and there is steady demand from both tenants and owner-occupiers, which supports resale.
Cons. The strong run means entry prices have already risen and the easy yield has compressed. Location is everything, so a shed in the wrong pocket, with poor truck access or clearance, is far harder to lease. Older stock can also carry environmental or contamination questions that need proper due diligence.
Retail
Retail ranges from a single shop in a strip to a neighbourhood centre or large-format retail (bulky goods). The key is the type of retail, not the label.
Pros. Well-located neighbourhood and convenience retail, the everyday shops people use regardless of the economy, has proven defensive, and yields around 5.00 to 6.50 per cent have been compressing as buyers re-rate the sector. Large-format retail rents grew close to 4.5 per cent year-on-year into late 2025. A strong anchor tenant, such as a supermarket or medical group, can carry a whole centre.
Cons. Discretionary and fashion retail carries genuine online and spending-cycle risk. A single-tenant shop concentrates your income in one operator, so if they fail, your vacancy is total. Retail leases and incentives can be complex, and fit-out and make-good obligations need careful reading.
Office
Office is the most divided sector in the market right now, and the averages hide the story.
Pros. Prime, well-located office still attracts tenants and trades around 6.00 to 7.25 per cent, and boutique fringe markets such as Cremorne have seen rents outpace the CBD. For a value buyer with a clear plan, secondary office out at 7.5 to 9.5 per cent can look tempting.
Cons. This is the sector to approach with the most caution. According to the Property Council of Australia, Melbourne CBD office vacancy has climbed to roughly 19 per cent, its highest since 1997, as hybrid work reshapes demand. Secondary and Docklands stock has been hit hardest, with widening yields and long letting-up periods. High headline yield here often reflects high risk, not a bargain, and re-leasing an empty floor can be slow and costly.
Medical and healthcare
Purpose-built or fitted medical premises, from GP clinics and dental surgeries to allied health and day hospitals, have become one of the most sought-after commercial categories.
Pros. Healthcare income is defensive: demand is driven by an ageing population rather than the economic cycle. Tenants tend to be sticky because relocating a fitted clinic is expensive and disruptive, leases are often long with CPI-linked reviews, and yields around 5.50 to 6.75 per cent reward that stability.
Cons. The quality is priced in, so entry yields are firm and genuine opportunities are competitive. Fit-outs are specialised, which narrows the pool of replacement tenants if one leaves, and the value can lean heavily on a single dominant operator or practice.
Mixed-use
Mixed-use combines uses in one asset, most commonly a shop or office at ground level with a residence or offices above.
Pros. Diversified income from more than one tenant type can smooth vacancy, and the residential component can broaden the buyer pool at resale. There can also be flexibility to reposition or add value over time.
Cons. Two uses means two sets of rules, two lease structures and, often, more complex finance and management. The commercial and residential parts are taxed and treated differently, and valuers can be cautious, which occasionally affects borrowing.
So which type is right for you?
There is no single best asset class, only the one that fits your goals, timeframe and appetite for risk. If you want defensive, low-touch income, industrial and healthcare have been the safer end of the spectrum. If you are chasing higher yield and are prepared to actively manage risk, parts of the office and retail markets offer it, with the volatility to match.
The harder work is not choosing a category in the abstract, it is assessing the specific tenant, lease and location in front of you, which is where most of the real risk and reward actually sits. That is the job of a commercial buyers advocate: independent, buy-side analysis of the deal, not the sales pitch. If you would like a second read on a property you are considering, or help working out which sector suits your strategy, get in touch.
If you want the bigger picture on why so many local investors are making this move, read why Victorian investors are turning to commercial.
Frequently asked questions
What are the main types of commercial property?
The main asset classes are industrial and logistics, retail (from single shops to neighbourhood centres and large-format), office, medical and healthcare, and mixed-use. Each carries a different profile of yield, tenant quality, vacancy risk, liquidity and capital growth.
Which type of commercial property is the safest investment?
No commercial property is risk-free, but into 2026 industrial and medical/healthcare have generally been the more defensive, with tighter vacancy, sticky tenants and steady demand. Secondary office has been the highest-risk sector, with record vacancy and widening yields.
Which commercial property has the highest yield?
Headline yields are highest in secondary CBD office, which has been trading around 7.5 to 9.5 per cent, but that reflects elevated vacancy and risk rather than a bargain. Higher yield almost always signals higher risk, so the quality of the income matters more than the percentage.
Is industrial property still worth buying in Melbourne?
Industrial remains in strong demand with low vacancy, but the easy yield has already compressed after a long run of price growth. It can still suit investors who buy well-located stock with good access and a solid tenant, and who are realistic about entry pricing.
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 about your own situation.
