Neither Utopia, nor Collapse. Just Victoria.

In recent months, if not arguably for longer, investors have developed the habit of raising an eyebrow whenever Victoria is mentioned. The word “uninvestable” has been floated with such regularity that one could mistake it for the gospel truth. To be fair, the state has given its detractors plenty of ammunition: the headline act being ballooning debt levels that would make even the most seasoned treasurer reach for the aspirin. And yet, when one looks at the data, the notion that Victoria has slipped into some unique economic purgatory is far less convincing.

Victoria’s gross state product expanded 1.5% over the past year, a figure that, while not heroic, sits neatly beside New South Wales at 1.2% and only a touch behind Queensland’s 2.1%. Unemployment hovers around 4–4.5%, much the same as Sydney and Brisbane. Auction clearance rates in Melbourne have returned to the high 60% – low 70% range, outpacing Queensland’s patchy mid-50% levels and broadly matching Sydney’s sale clearance rates. By such crude metrics, Victoria is running with the pack, not limping behind it (source: Australian Bureau of Statistics).

The real sticking point, however, is liquidity. In the short term, markets tend to be less concerned with long-run fundamentals and more concerned with whether buyers and sellers are actually shaking hands. Here, Victoria is not alone: both Melbourne and Sydney recorded year-on-year declines in residential transaction volumes. Fewer deals, even in the face of stable or rising prices, tell us that sentiment is fragile and capital is selective. Liquidity has thinned but, crucially, it has thinned everywhere. If Sydney’s dip in volumes is read as a pause rather than a death knell, then Melbourne’s identical trend can hardly be cast as terminal decline.

Asset-by-asset, the story reinforces this thesis.

Office in Melbourne is where weakness is most visible. Prime CBD rents may have climbed 4% year-on-year, but incentives are now an eye-watering 49% on average. This is not just high, it is extraordinarily so, underscoring the difficulty landlords face in convincing tenants to commit space without effectively paying them to do so. In our view, any market where you need to buy the tenant in order to lease your building is not one we want to be actively involved in. That said, capital markets tell a slightly different story: yields at 7.1% point to continued demand from investors who see value at current levels. The delta between economic yields and passing yields remains substantial. As such, for Harbour Credit Partners, caution is the watchword when it comes to Victorian office (source: CBRE).

Industrial, by contrast, is robust. Melbourne’s prime industrial rents rose 6.7% over the year, broadly in line with Brisbane and ahead of Sydney’s more subdued performance. Vacancy has crept up to 3.3% but remains historically low, and the pipeline is moderating after a glut of completions. Most tellingly, investment volumes surged 116% in 2024 — a remarkable display of capital appetite that sits uneasily within an “uninvestable” narrative (source: Knight Frank).

Residential rounds out the picture. Melbourne’s median house price rose 0.3% in the March quarter and 2.3% year-on-year, a softer trajectory than Sydney or Brisbane but hardly catastrophic. Auction clearance rates around 70% demonstrate consistent buyer demand, even if transaction volumes are lower year-on-year. The decline in sales activity is not unique to Victoria but a broader east coast theme, shaped by higher funding costs and affordability pressures. Liquidity has eased, but it has not evaporated (source: CBRE).

It is worth emphasising that these observations are backward-looking, reflecting what the data shows today rather than forecasting the landscape tomorrow. We make no claim to an ability to predict short-term market moves, nor do we expect sentiment to shift on our say-so. But if investors are to dismiss Victoria as “uninvestable,” they must also be prepared to dismiss Sydney, Brisbane, and indeed the entire eastern seaboard. The trends are more shared than they are unique.

So, how fare thee, comrade? In Victoria, the market may not be a worker’s paradise, but nor is it the wasteland some would have us believe. The fundamentals, though uneven, are intact, and where sentiment has overshot reality, opportunities will emerge. For now, Victoria may be investable yet. However, as in politics, the allocation of capital is best made with a clear-eyed view of which battles are worth fighting.

About Harbour Credit Partners

Harbour Credit Partners is a Sydney-based private real estate loans manager and a joint venture with a local single family office. Wholesale investors are eligible to coinvest in specific loans settled by the HCP investment team in the Harbour Credit Partners Master Trust, or to invest in a diversified pool of underlying loans via the Harbour Credit Partners Diversified Mortgage Fund.

For a complete list of HCP’s current active loan portfolio (including those opportunities where the capacity available to external investors has been exhausted), please access the following link:

https://harbourcreditpartners.portal.agorareal.com/#/public/offerings

Please contact Jonathan Goll, Head of Investor Solutions, with any questions or comments that you might have, or should you need assistance with setting up an account and applying for investment with the firm.

Jonathan Goll 
Head of Investor Solutions
M: +61 438 082 247
E: jgoll@harbourcreditpartners.com
Level 5, 131 Macquarie Street, Sydney NSW 2000
harbourcreditpartners.com

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Harbour Credit Partners Pty Ltd is the Investment Manager of the Harbour Credit Partners Master Trust. It holds a Corporate Authorised Representative authorisation CAR No.001308393 from Quay Wholesale Fund Services Pty Ltd (Quay) (AFSL No. 528 526). Harbour Credit Partners Pty Ltd also holds a Corporate Authorised Representative authorisation from Quay allowing it to provide General Product Advice.