Melbourne set to overtake Sydney as Australia’s biggest city as property demand surges

Melbourne is poised to become Australia’s largest city within the next decade, with strong population growth, infrastructure investment and relative affordability driving long-term property demand.

A new research report from Knight Frank argues the Victorian capital remains one of the country’s most compelling markets for investors, businesses and residents.

The report highlights the city’s rapidly expanding population, diverse economy and major infrastructure pipeline as key factors underpinning future property growth.

Knight Frank Managing Director Victoria, Dominic Long, said Melbourne’s fundamentals continue to position the city strongly for long-term investment.

“Melbourne continues to stand out as one of Australia’s most compelling real estate markets,” he said.

“It is Australia’s strongest long-term growth city with the fastest growing population, the most diversified economy, world-class liveability and the most affordable major market for office, industrial and residential property.”

Population growth driving demand

Melbourne’s population has grown at an average rate of 1.8 per cent per year since 2000, faster than any advanced global economy, according to the research.

In the year to June 2025 alone, the city added about 123,500 residents, the largest annual increase of any Australian capital.

Population growth is expected to remain one of the key drivers of demand across residential and commercial property markets, including housing, offices and logistics space.

The report forecasts Melbourne’s population will overtake Sydney’s by the 2030s, reinforcing its position as the country’s fastest-growing major city.

Office market offering value

Melbourne’s CBD office market is also attracting renewed attention from investors.

Prime office rents remain significantly lower than in competing cities, with CBD office space about 46 per cent cheaper than Sydney and around 13 per cent cheaper than Brisbane.

That relative affordability is expected to drive long-term demand from occupiers and investors seeking value in Australia’s largest office markets.

The city’s office sector is also showing signs of recovery, with effective rents rising in 2025 and demand increasing for high-quality buildings in premium locations.

Industrial market benefiting from scale

Melbourne’s industrial sector continues to expand, supported by strong population growth, e-commerce demand and the scale of the city’s logistics network.

The city already hosts the country’s largest industrial market, with about 34 million square metres of warehousing stock and significant land available for future development.

Industrial rents remain competitive compared with other capitals, while Melbourne’s port handles the largest container volumes in Australia, further supporting demand for logistics space.

Infrastructure pipeline supporting growth

More than $200 billion in transport infrastructure investment between 2014 and 2036 is also expected to reshape the city and support future property values.

Major projects include the Metro Tunnel, the West Gate Tunnel, the North-East Link and the Suburban Rail Loop, which together will improve connectivity across Melbourne and its growth corridors.

Knight Frank’s Head of Research & Consulting, Victoria, Dr Tony McGough, said these investments would play a key role in supporting the city’s economic expansion.

“Melbourne is Australia’s most economically diverse city and has delivered stable growth for more than two decades,” he said.

“With strong population growth, a highly educated workforce and unprecedented infrastructure investment, Melbourne is well placed to remain one of Australia’s most attractive long-term property markets.”