For years, the default investment in Victoria was a house or a unit. That is changing. More and more local investors, including plenty who have only ever owned residential, are now looking hard at commercial property. It is not a fad. A handful of real shifts have quietly moved the maths, and they are worth understanding whether you decide to follow the trend or not.
The yield gap has become hard to ignore
The clearest driver is income. Gross residential yields in Melbourne often sit around 3 per cent, and after rates, insurance, maintenance and management, the net figure is thinner again. Commercial income sits well above that. Into 2026, industrial in the south-east has traded around 5.25 to 6.00 per cent, medical and healthcare around 5.50 to 6.75 per cent, and neighbourhood retail around 5.00 to 6.50 per cent.
For an investor who wants their property to actually pay its way rather than be negatively geared and topped up each month, that gap is compelling. Commercial tends to trade capital growth for income, so it is not a like-for-like swap, but for anyone focused on cash flow and yield, the case makes itself.
Rising residential holding costs in Victoria
The other half of the story is what has happened to the cost of holding residential in this state. Victoria’s land tax scales have been lifted and are legislated to stay elevated through to 2033, and the tax-free threshold was cut sharply, to $50,000 of land value. The practical effect is that many residential investors are now paying land tax they never used to, and paying more of it each year.
To put a number on it, a standard residential investment with a site value around $600,000 can attract roughly $1,950 a year in land tax under current general rates, with more again if it is held in a trust or by an absentee owner. On residential, the landlord almost always wears that cost.
This is where commercial changes the equation. On a typical net lease, the tenant, not the landlord, pays the outgoings, and that often includes the land tax. So not only is the yield higher, but a chunk of the holding cost that erodes a residential return is carried by someone else.
Victoria is removing stamp duty from commercial
There is also a structural tailwind that many investors have not fully priced in. Under the Commercial and Industrial Property Tax reform, which began on 1 July 2024, Victoria is phasing stamp duty out of commercial and industrial property. A qualifying property pays stamp duty once, and ten years later it shifts to an annual 1 per cent tax on its unimproved land value, with stamp duty gone on all future sales. First buyers can even take a government transition loan for that final duty payment on purchases up to $30 million.
Residential buyers, by contrast, still pay full stamp duty on every purchase. Over a long hold, and especially for investors who transact more than once, removing the single largest upfront tax from commercial is a meaningful advantage that grows over time.
Less day-to-day hassle
Commercial also tends to be lower-touch to own. Leases are usually longer, so you are not re-letting every twelve months. Rent reviews are built into the lease, often fixed or CPI-linked, so increases are contractual rather than a negotiation. And on a net lease the tenant looks after most outgoings and much of the maintenance. For an investor who wants an income stream rather than a second job, that is a genuine drawcard.
The catch, and it is a real one
None of this makes commercial a one-way bet, and any honest advocate will tell you so. The trade-offs are real.
Vacancy hurts more. When a commercial tenant leaves, the property can sit empty for months, and you carry the outgoings while it does. Melbourne’s CBD office vacancy near 19 per cent, its highest since 1997, shows how badly a sector can turn. Commercial is also less liquid than residential, so it can take longer to sell, finance is harder and needs a bigger deposit, and capital growth is typically more modest than well-located housing. Above all, the quality of the specific tenant and lease matters enormously, and that is exactly where an untrained buyer can be caught by a strong-looking yield that hides a weak covenant or a lease about to expire.
In other words, the shift to commercial is rational, but it rewards diligence, not enthusiasm. The investors doing well are the ones who understand exactly what they are buying.
Making the move with your eyes open
If the trend has you curious, the sensible first steps are to get clear on your goal, income, growth or a balance of both, and to understand the types of commercial property and how buying commercial property in Melbourne differs from what you already know.
From there, independent advice is worth its weight. A commercial buyers advocate in Melbourne works on your side of the deal only, assessing the tenant covenant, the lease, the outgoings, the zoning and the price against the real market, so you move because the numbers stack up, not because the trend is fashionable. At LP Advisory we act on the buy side, with no conflict, and we are property advocates, not business brokers.
If you are weighing commercial against your next residential investment, get in touch for an independent, no-pressure read on which path actually suits your strategy.
Frequently asked questions
Why are investors moving from residential to commercial property in Victoria?
The main reasons are the wide yield gap (commercial income is often well above residential’s roughly 3 per cent), net leases that pass outgoings such as land tax to the tenant, rising residential holding costs in Victoria with land tax scales elevated to 2033, and the stamp duty reform that is removing duty from commercial and industrial property over time.
Does commercial property really have higher yields than residential?
Generally yes. Melbourne commercial yields into 2026 have ranged from around 5 per cent for tightly held sectors to 9 per cent or more for higher-risk secondary office, compared with gross residential yields often near 3 per cent. Higher yield tends to reflect higher risk, so the strength of the tenant and lease matters more than the headline number.
Who pays the land tax on a commercial property?
On a typical net lease, the tenant pays most outgoings, which often includes land tax. This is different to residential, where the landlord usually bears it, and it is one of the reasons commercial appeals to investors facing higher Victorian holding costs. Confirm the specifics in the lease and with your accountant.
Is now a good time to buy commercial property in Melbourne?
It depends entirely on the sector and the asset. Industrial and medical have been the more defensive performers, while secondary office carries record vacancy and higher risk. The right time is when a specific deal stacks up on tenant quality, lease and price, which is why independent buy-side analysis is so valuable.
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.
