Supply
Melbourne’s CBD office market decreased by 500 square metres over the six months to July 2025 as the level of stock withdrawals surpassed new additions. The Melbourne CBD office market now comprises 5.17 million square metres, second in size to the Sydney CBD office market.
The only additions to the Melbourne CBD office market in the six months to July 2025 was the full refurbishment of 226 Flinders Lane which added 4,300 square metres. In contrast, 4,800 square metres was withdrawn from the CBD office market driven by 179 Flinders Lane which was recently purchased by restaurateur, Chris Lucas.
The Western precinct continues to hold the most office space in the Melbourne CBD with 34% followed by the Docklands which comprises 1.2 million square metres having increased by almost 53% over the past 10 years.
In terms of quality of space, as at July 2025, A-Grade quality office space accounts for almost half of all office space across 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 as tenants increasingly become more discerning. In contrast, the levels of both C-Grade and D-Grade office stock in the Melbourne CBD office market declined over the past decade.
Looking forward, there are seven (7) new developments which are under construction or have begun siteworks. Looking ahead through to 2027, the pipeline of new supply is expected to deliver almost 285,000 square metres of new and refurbished space across the Melbourne CBD. This is 70% of the long-term average. With the constrained development pipeline, the location of the new supply is relatively evenly spread with new stock being delivered in the Western, Docklands and Eastern precincts.
Melbourne CBD Office Supply by Precinct
Supply
Source: Property Council of Australia
pre-commitmentS
Of the space that is under construction, pre-commitment levels remain modest compared to previous years with currently 34% pre-leased. Development activity is projected to remain below average levels for the medium term due to the elevated vacancy rate and cost of construction. Pre-leasing activity however, is anticipated to increase with attractive leasing terms on offer.
Beyond those offices currently under construction, there are a number of proposed projects at various stages of development including:
• Dexus: 60 Collins Street - 42,182sqm
• Charter Hall: 555 Collins Street - 35,000sqm
• Hines: 600 Collins Street - 60,000sqm
DemanD
While economic uncertainty has constrained tenant demand in the Melbourne CBD, falling interest rates and improved business conditions have underpinned office-based business expansion, particularly for small and medium businesses.
According to the PCA, the Melbourne CBD office market recorded its best tenant demand level in three years with positive net absorption of 1,446 square metres recorded in the first half of 2025. Although, the 10-year average half-year net absorption level for the Melbourne CBD office market is 9,500 square metres, the recent level of net absorption recorded was the first positive take up of space in the CBD since the first half of 2022.
Interestingly, in the six months to July 2025, B-Grade office stock outperformed all other grades in the Melbourne CBD with 15,031 square metres absorbed.
Further illustrating the trend of tenants becoming increasingly discerning, Premium-grade offices recorded positive net absorption of 4,520 square metres, while A-Grade office recorded negative net absorption in the first half of 2025. Similarly, C-Grade office stock recorded negative net absorption of 3,705 square metres in the six months to July 2025.
Melbourne CBD Net Absorption
Source: Property Council of Australia
DemanD
Victoria’s employment has increased with 54,300 new jobs created over the year. Reflecting the improving labour market of Victoria, the State’s unemployment rate remains low at 4.6% as at July 2025, 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 July 2025, the Eastern precinct recorded net absorption of 9,865 square metres boosted by strong leasing in Premium and A-grade stock. Other precincts to record solid absorption were the Western precinct with 7,612 square metres absorbed and Spencer precinct with 6,241 square metres taken up over six months to July 2025. In contrast, Civic, North Eastern and the Docklands precincts all recorded negative net absorption over the six months to July 2025.
Annual Victorian Employment Change by Sector
Source: ABS/ Fitzroys
tenant enQuIry
While leasing activity has picked up, with most of the demand driven by occupiers seeking sub 1,000 square metres, overall take-up levels remain below the long-term average.
Tenants remain focused on quality space, capitalising on favourable leasing terms to encourage employees back to the workplace. Demand is expected to be supported by continued population growth and evolving workplace strategies, although centred on offices which have undergone refurbishment or those with new fitouts in place.
Tenant enquiry is building with levels higher than those recorded over the preceding 12 months as businesses become more confident of their required space. The average size of enquiry has risen over the last 12 months.
Steadily more tenants are considering CBD options due to the premier amenity and connectivity of the CBD. This is evidenced by tenants from the fringe/suburban, committing to CBD offices including Coles, Sodexo and Simonds Homes over the past 12 months. The competitive leasing terms on offer for CBD office space coupled with imminent completion of the Metro Tunnel Q1 2026, has resulted in more CBD demand.
Tenant enquiry remains diverse with demand for CBD space led by Professional Services (45%) followed by Government (21%), Finance & Insurance (9%) and IT & Telecommunications (7%). Other sectors active in the CBD market over the past 12 months have been the Retail Trade and Healthcare sectors.
leaSInG tranSactIonS
Source: Fitzroys
vacancy
For the first time since 2020, the vacancy rate fell, albeit marginally, over the six months to July 2025 buoyed by positive net absorption. According to the Property Council, the total Melbourne CBD office vacancy rate decreased to 17.9% as at July 2025, down from 18.0% in January. 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 13.7% and Brisbane at 10.7%. Elsewhere, the office vacancy rate fell in Adelaide in the six months to July 2025.
Overall, the total Australian CBD office vacancy rate increased to 14.3% as at July 2025, the highest rate since January 1996. Outside of the CBD office markets, the overall vacancy rate of the Australian non-CBD office markets increased to 17.3% up from 17.2% and remains above its 10-year average of 12.3%.
The vacancy rate of the St Kilda Road office market decreased to 29.1% but remains significantly higher than its long-term average of 13%, while the vacancy rate in the Southbank office market fell to 16.7%, the decrease driven by withdrawals of stock with net absorption minimal.
Source: Property Council of Australia
vacancy
With the exception of A-Grade offices, the vacancy rate of all grades of offices in the Melbourne CBD office market decreased over the six months to July 2025. Despite the trend of tenants upgrading their office accommodation, the vacancy rate of prime offices (Premium and A-Grade) increased to 18.3% at July 2025, whereas secondary offices (B-Grade, C-Grade and D-Grade) fell to 16.8% - the lowest rate in three years. By individual grade, the
vacancy rate for Premium-grade offices declined marginally to 16.4% (down from 16.8%), while the vacancy rate for A-Grade offices increased to 19.3% - it’s highest since 1995. In contrast, the vacancy rates for Melbourne CBD B-Grade, C-Grade and D-Grade offices all fell in the six months to July 2025.
Melbourne CBD Office Vacancy
Source: Property Council of Australia
SuB-leaSe vacancy
The volume of sub-lease space in Melbourne CBD offices dropped to its lowest level since July 2020 with 62,493 square metres of space available for sub-lease as at July 2025, down from 80,576 square metres in January. Consequently, the sub-lease vacancy rate fell to 1.2% as at July 2025 across the Melbourne CBD office market, down from 1.6% in January as several tenants moved into fitted sub lease space, taking advantage of the favourable terms on offer.
A-grade office space accounts for 85% of total sub-lease vacancy across the Melbourne CBD office market as at July 2025, with very limited opportunities for sub-lease in secondary grades.
vacancy By precinct
The Eastern, Flagstaff, Western and Spencer precincts recorded decreases in their vacancy rates in the six months to July 2025. In contrast, the vacancy rate of Docklands increased to an all-time high.
Similarly, the vacancy rates of the Civic and North Eastern precincts also recorded increases in the six months to July 2025. Collectively, the Western and Docklands precincts account for 62% of the overall vacancy.
Vacancy Rate Per Precinct
Precincts
outlook
Tenant enquiries are beginning to improve however, demand indicators suggest Melbourne CBD office vacancies are likely to stay high during 2025. While new office development remains below average in the medium term, uncertain economic and conditions are likely to result
in vacancy rates remaining elevated. With more tenants moving into the CBD, overall vacancy is set to decline more firmly from 2026, as businesses better align their office space footprints in response to hybrid working trends.
Source: Property Council of Australia
vacancy proJection
Melbourne CBD Vacancy Projection
Source: Property Council of Australia / Fitzroys
rentS & IncentiveS
Although average gross face rents for Melbourne CBD offices have increased through 2025, growth varies by precinct and building quality. As a result of increasing outgoings and incentives moreless stabilising, prime net effective office rents increased over the year to July 2025, rising by 2.2%. The availability of diverse, high-quality office accommodation options in the Melbourne CBD continues to drive competition amongst owners pushing prime incentives to historical high levels. Incentive levels now appear to have peaked.
Similarly, secondary CBD office rents appear to have
plateaued with annual growth of 0.6% recorded for secondary net face rents through the 12 months to July 2025.
Looking ahead, rents for prime offices in the CBD are projected to continue to gain momentum as incentives ease from their current historical highs, driving net effective rental growth. In contrast, rental growth for secondary offices is likely to remain subdued, constrained by the elevated overall vacancy rate.
rental proJectIon
Melbourne CBD Office Net Face Rents
Source: Fitzroys
leaSinG SucceSS
