Melbourne City Apartments: Investing Strategies Amid Supply Crisis

The volume of new apartments delivered across the CBD and surrounding suburbs has dropped dramatically, with fewer than 3,000 completions expected in 2025.

For investors, this shortage presents a double-edged sword. While limited stock makes competition fiercer, it also drives stronger rental returns and potential long-term capital growth, especially in high-demand areas of the inner city.

But how can you break through the intense competition?

In this article, our experts at Melcorp Real Estate will break down how to invest strategically in today’s tight market. We’ll explore where opportunities still exist, what to avoid, and how to approach the current supply crisis with clarity and confidence.

What is Happening with Australia’s Apartment Supply Crisis?

While demand for inner-city living continues to rise, the supply of new apartments is struggling to keep pace, creating a fundamental imbalance. Here’s a breakdown of the whole situation:

A historic slowdown in apartment supply

Between 2010 and 2016, Melbourne experienced strong population growth, investor demand (particularly offshore), and supportive lending conditions. This supported a surge in high-rise residential projects. In 2016 alone, around 19,000 apartments were completed. 

By 2017, regulators began stepping in. Concerns over apartment quality, speculative building, and oversupply led to a tightening of controls. As a result, project approvals began to slow, and the pipeline of new construction started thinning.

The COVID-19 pandemic then brought apartment construction to a near standstill. Even as demand began to recover in 2022–2023, the supply side didn’t bounce back. This led to what the Property Council of Australia now describes as a “supply cliff.”

Why Melbourne City Apartments Demand is Still High

Even as Melbourne faces a steep decline in apartment supply, demand remains resilient—and in many ways, is intensifying. This demand is underpinned by a combination of demographic growth, rental market pressure, lifestyle preferences, and long-term economic fundamentals.

Let’s explore these factors below:

Surging population growth

According to the Australian Bureau of Statistics, the city welcomed over 142,600 new residents in the 2023–24 financial year, more than any other capital city. This surge is largely driven by international migration, as Australia reopens its doors to skilled workers, students, and permanent migrants after the pandemic-era closures.

By 2035, Melbourne’s population is expected to reach over 6.4 million. Much of this growth is concentrated in areas within 10 kilometres of the CBD, where access to universities, employment hubs, and public transport is most valuable. 

As a result, well-located apartments remain a sought-after housing option for both renters and owner-occupiers.

Tight vacancy and rising rents

Vacancy rates in the inner city are sitting around 2%, and rents have climbed quickly. In early 2025, the average rent for a one-bedroom apartment in the CBD had also reached $600 per week.

This means stronger rental yields for investors, which will remain so in the next few years as demand continues to increase.

Investor and owner-occupier appeal

More downsizers and professionals are choosing apartment living for convenience and location. And with limited new developments underway, competition for quality stock is rising.

Long-term value from new infrastructures

Melbourne’s major infrastructure upgrades, like the Metro Tunnel and Suburban Rail Loop are making city living even more attractive. These projects improve transport, reduce travel time, and boost the value of nearby properties over time.

Core Investment Strategies in a Supply-Constrained Market

When buying an apartment, you need to be selective about location, building type, and timing. Below are some of the smartest ways to invest in Melbourne City Apartments for sale in 2025’s unique market conditions.

Focus on inner and middle-ring locations with limited supply

Suburbs like Carlton, West Melbourne, Southbank, and parts of the CBD offer access to jobs, universities, transport, and lifestyle hubs, yet they’re seeing fewer new developments due to planning restrictions, rising build costs, and limited land.

These areas are becoming harder to build in, which means the apartments that do exist are likely to hold or grow in value as demand increases.

So, look for inner and middle-ring suburbs with declining development pipelines but strong rental demand. These areas offer a balance of capital growth and rental returns.

Choose boutique or low-density buildings over high-rise towers

Despite their appeal, high-rise towers often come with higher turnover, more volatility in resale values, and lower owner-occupier appeal. In contrast, boutique or mid-rise buildings, especially those with fewer than 50 units, tend to attract more stable tenants, offer a stronger community feel, and are less exposed to oversupply risk.

Boutique buildings are also often built to a higher standard and have lower ongoing costs, helping protect your investment over time.

Time your entry with off-the-plan incentives

With fewer projects moving forward, developers are offering more flexible terms to serious buyers. In Victoria, for example, eligible purchasers may still benefit from stamp duty concessions on off-the-plan purchases, potentially saving thousands.

Explore build-to-rent or co-living opportunities

Although traditionally the domain of large institutions, Build-to-Rent (BTR) is growing in Melbourne and may offer new opportunities for private investors in select projects. These buildings are professionally managed, designed for long-term tenancies, and typically located in prime areas.

Another emerging model is co-living, apartment-style living with shared spaces designed for young professionals. These developments often deliver higher rental yields and respond directly to affordability and lifestyle trends.

Renovate and add value in tight supply areas

In a market where new apartments are limited, older stock in premium locations offers hidden potential. Savvy investors are increasingly buying older apartments in well-built complexes and renovating to modern standards, unlocking capital gains and attracting premium tenants.

Structure your finance for flexibility

In a supply crisis, holding the asset long-term is key. Work with mortgage brokers who understand investor needs and can structure loans that accommodate:

• Interest-only periods
• Offset accounts for cash flow management
• Finance pre-approval for off-the-plan flexibility

A strong finance strategy ensures you’re not forced to sell in a slow resale window, and lets you act quickly when the right property becomes available.

Invest Smarter in Melbourne’s Apartment Market

In a city where demand is rising and new apartment supply is falling behind, the right investment can set you up for long-term growth. But timing, location, and strategy are everything.

At Melcorp Real Estate, we specialise in helping investors navigate the complexities of buying Melbourne City Apartments for sale, with insights tailored to the CBD and surrounding suburbs. Our team is here to guide you toward the most rewarding opportunities.

Contact us today and discovery the best apartments for sale now!