A new report has highlighted one of Australia's most popular markets as the best place to invest out of the entire Asia-Pacific region - and it's not Sydney.

Overtaking Sydney and Singapore, Melbourne has been determined to have the best property investment and development prospects, according to the Emerging Trends in Real Estate Asia Pacific 2019 report by the Urban Land Institute and PwC.

Melbourne's number one ranking was due to offering constrained office supply, a good yield spread in comparison to the cost of debt and sovereign bonds, a market considered to be deep and liquid while also having solid rental growth potential.

Despite Sydney coming in a third for both investment and development opportunities, its high standing is similar to Melbourne's, with demand helping to sustain current pricings and low vacancy rates pointing towards rising rents.

While the residential market has been performing well, it was office and industrial investing that elevated Melbourne's status, with the report claiming quality office and retail yields at 4.5 per cent and industrial yields at 5.5 per cent, which are considered attractive by international standards.

"The survey results for this year's Emerging Trends in Real Estate® Asia Pacific report shows that many investors in the region are looking to Australia's largest cities for investment opportunities," said Susan McDonald, ULI Australia chair, and head of retail at Mirvac.

"Both Melbourne and Sydney are core markets at heart but we are seeing that with the number of investable assets significantly lower than in Japan there is strong competition to place capital, especially with so many international players looking to buy."

Tony Massaro, partner at PwC Real Estate Advisory, added that value-adds are what attracts investors in Australia.

"The sheer weight of institutional capital, both domestic and foreign, has pushed yields down further in core markets, with most investors reporting that finding assets to purchase continues to be difficult," Mr Massaro said.

"From a lending perspective, continuing pressure on banks from the royal commission and rising US interest rates will tighten lending even further, particularly for developers."

Across the entire Asia-Pacific region, co-living was a rising trend as a way for developers to appeal to potential tenants, with cities becoming denser and capital flows across international borders expected to remain strong.