Supply
Melbourne’s CBD office market decreased by 58,742sqm over the past six months to January 2025 as the level of stock withdrawals surpassed new additions. The Melbourne CBD office market now comprises 5.17 million square metres, its size second only to the Sydney CBD. The only additions to the Melbourne CBD office market in the six months to January 2025 were through minor refurbishments which added 4,670 square metres to the market. In contrast, 63,412 square metres was withdrawn largely through the full refurbishment of Charter Hall’s 111 Bourke Street. In addition to the stock withdrawn for refurbishment, several buildings were permanently withdrawn for alternative uses including residential and hotel development.
As at January 2025, A-Grade quality office space accounts for half of all office space in the Melbourne CBD. Over the past 10 years, the level of Premium grade office stock has grown the most with 504,546 square metres delivered to the Melbourne CBD market.
The Western precinct continues to hold the most office space in the Melbourne CBD with 33% followed by Docklands which comprises 1,200,000 square metres having increased by almost 64% over the past 10 years.
Looking forward, there are seven new developments which are under construction or have commenced siteworks. The pipeline of new supply leading through to 2027, is expected to deliver almost 275,000sqm of new and refurbished space across the Melbourne CBD, which is half the longterm average. With the constrained development pipeline, the location of the new supply is relatively evenly spread throughout the Western, Docklands and Eastern precincts.
Source: Property Council of Victoria
Melbourne CBD Office Space by Grade
pre-commitmentS
Pre-commitment levels remain modest compared to previous years with currently 35% pre-leased. With development activity projected to remain below average levels for the medium term, pre-leasing activity is anticipated to increase with attractive leasing terms on offer.
Beyond those offices currently under construction, there are a number of projects at various stages of development approval including: Dexus’ 60 Collins Street (42,182sqm), Stage 2 of 555 Collins Street (35,000sqm) and Hines’ development at 600 Collins Street (60,000sqm).
cBD projectS unDer conStruction / SiteworkS
DemanD
Although tenant demand in the CBD has been subdued due to economic uncertainty and the impact of hybrid work patterns, there is now evidence of tenants expanding and re-locating into the CBD including Coles, Healthcare Australia and Sodexo. Leasing activity has mainly focused on smaller suites and fitted sub-lease opportunities.
According to the PCA, the Melbourne CBD office market recorded negative net absorption of 44,962sqm in the six months to January 2025, the fifth consecutive negative period of net absorption. In comparison, the 10-year average half-year net absorption level for the Melbourne CBD office market is 12,500sqm.
Reflecting the elevated vacancy rates, tenants are increasingly discerning, with higher quality buildings demonstrating a competitive advantage while older assets struggle to attract interest.
In the six months to January 2025, B-grade office stock outperformed all other grades in the Melbourne CBD with 13,876sqm absorbed. In contrast, Premium, A-grade and C-grade offices all recorded negative net absorption in the six months to January 2025.
Victoria’s employment continues to increase, reaching an alltime high in December 2024, having increased by 132,500 new full time jobs over the year. Reflecting the improving labour market of Victoria, the State’s unemployment rate remains at 4.4% as at December 2024, below the 20-year average of 5.2%. Looking ahead, Victoria’s employment is projected to increase further through 2025, boosting the need for office space.
Over the six months to January 2025, the Civic precinct recorded net absorption of 11,419sqm boosted by strong take up in A-grade and B-grade stock. Other precincts to record solid absorption were the Western precinct with 10,499sqm and North Eastern precinct with 10,185sqm taken up over six months to January 2025. In contrast, Flagstaff, Eastern, Spencer and Docklands precincts all recorded negative net absorption over the six months to January 2025.
tenant enquiry
Tenant enquiry levels are strong for smaller and medium sized firms with demand for up to 400 square metres remaining resilient. Occupiers are increasingly looking at CBD options given the attractive leasing terms on offer. Tenant enquiry is gaining momentum for 1,000sqm+ requirements with levels higher than those recorded over the preceeding 12 months as corporates become more confident of their patterns of working.
Increasingly tenants are considering CBD options due to the premier amenity and connectivity of the CBD; as witnessed with several tenants committing to CBD offices including Coles, Sodexo and IWG over the past 12 months. The competitive leasing terms coupled with the Metro Tunnel due for completion this year, has resulted in more tenants exploring CBD options.
Tenant enquiry for Melbourne CBD remains diverse with demand for office space led by Professional Services (29%) followed by Government (24%), Finance & Insurance (18%) and IT & Telecommunications (12%). Other sectors active over the past 12 months have been the Education and the Healthcare sectors.
Tenant enquiry from TR's is profiled as follows:
top 10 larGeSt BrIeFS
Source: Fitzroys
recent cBD leaSinG tranSactionS
Vacancy
The vacancy rate held steady over the six months to January 2025, as stock withdrawals aided the negative net absorption. According to the Property Council Australia (CPA), the total Melbourne CBD office vacancy rate remained stable at 18.0% as at January 2025, albeit its highest rate since 1997. In comparison to the other Australian CBD office markets, Melbourne’s vacancy is higher than all other markets with Sydney’s CBD vacancy rate sitting at 12.8% and Brisbane at 10.2%. Elsewhere the office vacancy rate fell in Perth, Adelaide, Canberra and Darwin in the six months to January 2025.
Overall, the total Australian CBD office vacancy rate increased to 13.7% as at January 2025, the highest rate since 1996. Outside of the CBD office markets, the overall vacancy rate of the Australian non-CBD office markets remained stable at 17.2%, although remains above its 10-year average of 12.3%. Elsewhere in Melbourne, the vacancy rate of the St Kilda Road office market rose to all-time highs as at January to 29.3%, while the vacancy rate in the Southbank office market fell to 17.6% with vacancy stable in the East Melbourne office market at 7.3%.
Source: Property Council Australia (PCA)
Fringe Market
Vacancy By GraDe
With the exception of B-grade offices, the vacancy rate of all grades of offices in the Melbourne CBD office market increased over the six months to January 2025. Despite the trend of tenants upgrading the quality of their accomodation, the vacancy rate of Premium offices increased to 16.8%, its highest rate since
1993 with the A-grade office vacancy rate increasing to 18.5%, the highest rate in two decades.
In contrast, Melbourne CBD B-grade offices vacancies decreased, with its vacancy rate declining to 20.3%.
SuB-leaSe Vacancy
Boosted by several tenants capitalising on the attractive terms on offer, the sub-lease vacancy level of the Melbourne CBD office market, decreased over the six months to January 2025, falling to its lowest level since 2021. As at January 2025, sub-lease vacancy totalled 80,576sqm however, still remains above its 10-year average, resulting in a sub-lease vacancy rate of 1.6%.
Collectively, Premium and A-grade office space account for 92% of total sub-lease vacancy across the Melbourne CBD office market as at January 2025.
In addition to the PCA sub lease vacancy, significant sub lease opportunities include Telstra (242 Exhibition Street, Melbourne - 6,000sqm), NAB (800 Bourke Street, Docklands - 25,000sqm).
Vacancy By precinct
Across Melbourne’s CBD office market, by precinct, there were mixed results in the six months to January 2025. The Civic, Flagstaff, North Eastern and Western precincts recorded decreases in their vacancy rates in the six months to January 2025. In contrast, the vacancy rates of the Docklands precinct increased to all-time highs however, is now projected to have peaked in the short term. Similarly, the vacancy rate of the
Eastern precinct currently sits at 20-year high rates with an increase also recorded in the Spencer precinct. Collectively, the Western and Docklands precincts account for 61% of the vacancies within the Melbourne CBD office market.
outlook
Looking ahead, whilst tenant enquiries are showing signs of improvement, leading indicators of labour demand suggest that the total vacancy rate of the Melbourne CBD office market is likely to remain elevated through 2025.
Having said that, the vacancy rate of the Melbourne CBD office market is forecast to be close to its peak. It is predicted that the increasing rate of tenants relocating into the CBD will see the overall vacancy rate plateau this year before declining from 2026.
rentS & IncentiVeS
Gross face rents for Melbourne CBD offices have risen through the past 12 months as a result of increasing outgoings and incentives. Prime net effective office rents marginally increased over the year to January 2025. The availability of diverse, high-quality office options in the Melbourne CBD continues to drive competition amongst owners which has pushed prime incentives to historical high levels, albeit this appears to have now peaked. Reflecting the number of prime office vacancies and strong competition for tenants, secondary net face rents have declined slightly through the 12 months to January 2025.
Prime offices in the Melbourne CBD are projected to record net effective rental growth from late-2025 as incentives begin to ease from their current historical highs. In contrast, rental growth for secondary offices is likely to remain under downward pressure until the overall vacancy rate has peaked as tenants continue to be focussed on their total occupancy cost.
oFFice leaSinG SucceSS
Phillip Cullity Director 0419 322 825 cullityp@fitzroys.com.au
Stephen Land Associate Director 0400 950 290 lands@fitzroys.com.au
Hamish Dennis Agency Executive 0406 500 232 dennish@fitzroys.com.au
