The Melbourne CBD office market continued to show mixed performance in Q2 2025, with steady leasing activity in prime assets, rising rents in certain segments, and vacancy still elevated due to new supply and softer demand for secondary stock. Investor sentiment is improving as monetary policy shifts towards growth, but the market remains highly segmented.
Vacancy and supply
Vacancy in Melbourne’s CBD remains high, though signs of stabilisation are emerging. Cushman & Wakefield report vacancy trending upwards as new supply approaches, with projects like Bennetts Lane (12,000 sqm, Q4 2025) and 435 Bourke Street (60,000 sqm, 2026) expected to place further pressure on occupancy levels. Longer term, vacancy is projected to peak around 2027 before gradually easing as demand recovers.
External data sources confirm this picture. JLL estimate Melbourne CBD vacancy at around 18.4% in Q2 2025, while CBRE put it at 17.9%. Both point to elevated levels compared with Sydney and Brisbane. Despite this, net absorption has turned positive, with JLL recording +11,900 sqm in Q2 and CBRE noting about +1,446 sqm over the past six months, the first sustained positive momentum since 2022. This reflects an uptick in mid-sized leasing, particularly in prime-grade buildings, as occupiers continue to focus on quality and location.
Demand
Leasing activity remains concentrated in premium and A-grade assets, as companies seek to balance efficiency with workplace strategies that support hybrid working. Secondary assets, particularly older stock, continue to underperform due to limited demand. According to Knight Frank, 56 leasing briefs were active in Q2, with an average size of 1,227 sqm, reinforcing the trend towards mid-scale requirements rather than very large consolidations.
Recent activity shows that tenants continue to prefer well-located, good-quality assets that can be adapted to modern workplace needs. Many of the largest deals have been in the 1,500 to 2,000 sqm range, with occupiers consolidating into efficient footprints rather than expanding overall requirements.
Rents and incentives
Rents have shown resilience in the upper tiers of the market. Cushman & Wakefield reported Premium-grade net effective rents rising 5.1% year-on-year to $461 per sqm, with incentives steady at 46.8%. A-grade remained broadly flat at $370 per sqm, while incentives edged higher to 49%. In the secondary sector, net effective rents have softened to $307 per sqm, the lowest since 2017, with incentives climbing to a record 49%.
External sources support this view. Knight Frank data shows prime net face rents increasing 2.1% quarter-on-quarter to about $735 per sqm, while secondary rose 3.7% to $557 per sqm. JLL recorded prime net effective rents up 2.4% in Q2 to $309 per sqm per annum. The differences in quoted rent levels reflect methodology (face vs effective rents), but the trend is consistent, premium assets are holding value, while secondary stock faces continued pressure despite aggressive incentives.
Investment market
Investor activity picked up modestly in Q2, with total transaction volumes exceeding $100 million. Cushman & Wakefield highlight deals such as 50 Queen Street, purchased by Up Property for redevelopment, and 301 Flinders Lane, the former Victoria University campus, which sold for $24 million. Activity has largely been concentrated in the mid-market, with most deals below $100 million and buyers targeting repositioning or redevelopment opportunities.
Improved economic sentiment and the Reserve Bank of Australia’s interest rate cuts in May have supported confidence. While investors remain selective, Melbourne is seen as entering the early stages of a recovery cycle, with prime-grade assets holding value and secondary stock offering repositioning plays for opportunistic buyers.
Future outlook
The Melbourne CBD office market is still working through elevated vacancy and a large pipeline of upcoming supply, but the worst of the demand shock may be passing. Leasing activity in prime-grade space, improving net absorption, and stabilising yields suggest the market is moving towards recovery. Secondary assets remain under structural pressure, but for well-located prime assets, both occupier and investor demand is showing encouraging signs of growth.
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