The Melbourne CBD office market entered the close of 2025 amid persistent structural headwinds, with vacancy remaining among the highest of Australia’s major capitals even as early signs of demand recovery emerge. While net absorption has returned to positive territory after several years of contraction, the pace of leasing and rent growth remains measured, reflecting ongoing caution among occupiers and a continued preference for quality stock.
Vacancy remains elevated as the market stabilises
Melbourne CBD continued to record a high vacancy rate, with data from mid-2025 showing figures around 17.9–18.0%, one of the highest across major Australian city centres. This followed a long period of elevated vacancy driven by hybrid work preferences and subdued office utilisation.
While this represents a marginal decline from prior peaks, it underscores the market’s slower recovery relative to peers such as Sydney and Brisbane. Many tenants continue to optimise portfolios rather than expand, and vacancy remains evenly spread across a broad range of grades, with older stock under particular pressure.
Leasing demand shows early signs of recovery
Leasing demand in Q4 was more positive than in recent years, with net absorption transitioning into positive territory — the first such result since 2022. Over the six months to mid-2025, Melbourne recorded a modest positive net absorption of about 1,400–5,000 sqm, with demand strongest in core precincts.
Demand continues to be driven by smaller-to-mid-sized occupiers (< 1,000 sqm), centralisation from fringe locations, and selective expansion in higher quality assets rather than broad market growth. These shifts suggest that tenant confidence is gradually improving, even as larger corporate commitments remain cautious.
Rent trends reflect divergence by grade
Office rents across the Melbourne CBD reflect a market in transition, with growth concentrated in better-located and quality buildings:
- Prime net face rents saw modest increases over the year, with some reports indicating growth near 1.0–2.1% across the wider 2025 period.
- Secondary and fringe assets continue to trend more weakly, often requiring higher incentives to attract occupiers, consistent with broader flight-to-quality dynamics seen in other markets.
Incentives in the Melbourne CBD have historically remained high relative to Sydney, and although there have been quarter-to-quarter fluctuations, they continue to be a key feature of effective rent negotiations.
Investment activity and yields
Investment activity in the Melbourne office sector remains subdued compared with Sydney, but interest has shown pockets of strength, particularly for well-leased, high-quality assets. While headline yields have varied across precincts, prime properties continue to attract more stable capital flows than older or secondary stock. This selectivity reflects a broader shift toward assets with long leases, strong tenant covenants, and modern amenity profiles.
Outlook — cautious optimism as fundamentals evolve
Looking ahead, the Melbourne CBD office market is likely to remain constructively challenged through early 2026, with vacancy elevated and leasing activity moderate. However, the emergence of positive net absorption and stabilising rents suggests the market may be nearing an inflection point.
Key themes shaping the outlook include:
- Ongoing flight to quality, with demand concentrated in well-located, amenity-rich buildings
- Continued caution among larger occupiers, with leasing driven by consolidation and cost efficiency
- Potential for vacancy stabilisation if net absorption continues at modest positive levels
While Melbourne’s recovery from prolonged vacancy pressures may lag those of other Australian capitals, early signs of demand improvement — coupled with a limited forward supply pipeline — suggest that fundamentals may gradually strengthen into 2026.
Sources:
- https://www.cbre.com/insights/figures/melbourne-cbd-office-figures-q3-2025
- https://www.cbre.com/insights/figures/melbourne-cbd-office-figures-q4-2024
- https://www.cbre.com/insights/figures/melbourne-cbd-office-figures-q1-2025
- https://research.jllapsites.com/appd-market-report/q3-2025-office-melbourne/
- https://www.knightfrank.com/research/305/documents/en/melbourne-cbd-office-market-august-2025-12389.pdf
