A man whose body was found inside his burnt-out Melbourne shop was bludgeoned to death with a hammer by a friend before it was set alight, police allege.

Simon Kepenci, 38, of North Fitzroy, faced an out-of-sessions hearing on Thursday evening charged with one count of murder and one of arson over the fire, which destroyed the Fetish clothing store and its adjacent residence in Brunswick Street, North Fitzroy early on Tuesday morning.

The body of its owner, named by police as 62-year-old Gordon Harvey, was found inside.

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Homicide squad Detective Senior Constable Kane Taylor told the hearing that Mr Harvey and Kepenci had fallen out in May last year when Mr Harvey accused him of stealing his car, but the pair re-kindled their friendship late last year.

Gordon Harvey, 62, had rekindled a friendship with the accused before the murder. Photo: Twitter

The men met at the shop on Sunday night, he said.

“The two used ice and took drugs together through the evening before the accused returned to his residence on Monday morning,” he said.

Kepenci returned at the invitation of Mr Harvey on the following night, Det Kane said.

“For reasons we have not established the accused used a hammer and struck the deceased multiple times inside the residence, causing his death,” he said.

“The deceased was then placed on a bed and for reasons that we have not established, the accused set fire to the clothing store.”

Detectives brought Kepenci in for questioning on Thursday morning and searched his home.

Det Taylor said personal items belonging to Mr Harvey including his iPad, car and other keys, and wallet were found in the home.

A blood-stained hammer was found in a garbage bin outside the residence, he said.

Mr Harvey’s car was found a short distance away.

Kepenci was “co-operative and pleasant through the day” while in custody and had made partial admissions to the alleged crimes, Det Taylor said.

Kepenci, wearing a forensic suit, told the hearing that he is on a disability support pension and last took his anti-depressant medication “five, six, seven days ago”.

He said he used ice “five days in every fortnight”.

Kepenci did not apply for bail, and he was remanded to appear in the Melbourne Magistrates Court on Friday.

-AAP