• Transactional activity in Melbourne’s office market continued to gather momentum underpinned by a number of significant sales of CBD offices;
• Aided by the withdrawal of obsolete stock, the vacancy rate of the Melbourne metropolitan office market decreased, but remains more than double the long-term average;
• While the vacancy rate of the Melbourne CBD office market has remained steady, Melbourne’s office vacancy rate is the highest across Australia.

Office Market Summary

Total transactional activity of Melbourne offices has now exceeded $1.5 billion in 2025 to date with sales volume already surpassing total levels recorded in 2024 and 2023. More than half of the sales volume of Melbourne offices was for stock in the CBD with sales volume for both St Kilda Road and Southbank office markets, recording their highest volume since 2019. While tenant demand improved, the vacancy rate of the Melbourne metropolitan office remains more than double the long-term average, as a result of the elevated vacancy rate, rents continue to downward pressure as tenants have many options in other markets including the CBD.

Sales Volume / Yields

Transactional activity in Melbourne’s office market continued to gather momentum underpinned by a number of significant sales of CBD offices. Total transactional activity of Melbourne offices has now exceeded $1.5 billion in 2025 to date with sales volume already surpassing total levels recorded in 2024 and 2023. Although investment activity has improved this year compared to the previous two years, current transactional levels remain at around 65% of average levels with typically more than $3 billion transacting over a year. More than half of the sales volume of Melbourne offices was for stock in the CBD and the metropolitan office market accounting for 23% of sales in 2025 to date. Interestingly, sales volume for both St Kilda Road and Southbank office markets, recording their highest volume since 2019, collectively with more than $350 million of offices transacting across the two precincts. Urban Property has recorded a stabilisation in yields for Melbourne metropolitan offices. As at September 2025, average prime metropolitan office yields sit at 7.65% with secondary yields averaging 9.25%. Urban Property expects Melbourne office yields are nearing their peaks however the spread between secondary assets is likely to continue to widen with investors remaining cautious for secondary offices given the soft tenant demand.

Melbourne Office Investment Activity.png

Supply

Urban Property has recorded 42,000 square metres of new office projects completed across the Melbourne metropolitan office market in 2025 to date with a further 29,000 square metres scheduled for completion this year. Beyond the stock projected to be completed in 2025, Urban Property is tracking a further 70,000 square metres over the next three years currently under construction across the Melbourne metropolitan office market. Of all the total stock currently under construction in the metropolitan office market, 50% is already committed. Much of the new development remains located in the City Fringe with the precinct accounting for 92% of all new metropolitan office stock projected to be completed by the end of 2028. Outside of the City Fringe, Urban Property forecasts that existing office stock will be withdrawn for alternative uses as the State government encourages residential development across 60 train and tram zone activity centres.

Tenant Demand

Over the year to September 2025, Victoria’s total employment growth, continued to ease from historical levels, with 57,000 additional jobs added across the state, but less than half the level recorded 12 months ago. Unsurprisingly, Victoria’s unemployment rate increased to 4.7% as at September 2025, up from 4.3% recorded in September 2024. Despite the slowing employment growth, leasing activity in the Melbourne metropolitan office market has lifted in 2025 with tenant demand solid, particularly for quality space, albeit remains below the long-term average. Tenants remain focused on prime space, offering quality amenities and close to transport options capitalising on the favourable leasing terms on offer. Looking ahead, the job market is also moderating with 45,600 jobs advertised in Victoria as at September 2025, down from 53,000 a year earlier, with current levels now below the 10-year average of 49,300. Urban Property projects that tenant demand while remaining selective on stock will continue to improve as business confidence gathers momentum.

Vacancy / Rents

While tenant demand improved, the effect of the withdrawal of obsolete stock rather than significant take up of space resulted in the vacancy rate of the Melbourne metropolitan office market recording another decrease, falling to 14.2% in September 2025 down from 15.2% at the beginning of the year, but remains more than double the long-term average. Urban Property forecast that the vacancy rate of the metropolitan office has peaked for the short term as the pipeline of new supply reduces in coming years. Although the vacancy rate has declined, as tenants have increasingly become more cautious, metropolitan office rents remained steady and remain under downward pressure as tenants have many options in other markets including the CBD. Looking ahead, Urban Property Australia forecasts that prime rents will marginally increase through the short term with the vacancy rate remaining elevated. In contrast, secondary office rents are projected to remain under downward pressure as occupiers seek to capitalise on better quality space which is highlighted from the recent trend of tenant moves.

Total Office Vacancy by Market

CBD, St Kilda Road & Southbank Office Markets

The vacancy rate of the Melbourne CBD office market was steady over the six months to July 2025, for the third consecutive half-year period with only modest net absorption recorded. According to the Property Council of Australia, the total Melbourne CBD office vacancy rate declined marginally to 17.9% as at July 2025 (down from 18.0% in January) and remains close to its highest rate since 1997. 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. 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% – both recorded increases in vacancy rates. According to the PCA, the Melbourne CBD office market recorded positive net absorption of 1,446 square metres in the six months to July 2025, significantly below the average level of 10,000 square metres. While the Melbourne CBD office market recorded its best tenant demand level in three years, interestingly, in the six months to July 2025, B-grade office stock outperformed all other grades in the Melbourne CBD. Looking ahead through to 2027, the pipeline of new supply is expected to deliver almost 300,000sqm of new space across the Melbourne CBD, around 70% the long-term average. The availability of diverse, high-quality office accommodation options in the Melbourne CBD continues to drive competition amongst owners which has pushed prime incentives to historical high levels, albeit appear to have now peaked.

Outside of the CBD, the vacancy rate of the St Kilda Road office market decreased in the six months to July 2025, to 29.1%, almost double the 10-year average. Elsewhere the vacancy rate of the Southbank office market also decreased, falling to 16.7% as at July 2025, the second consecutive fall with no stock added to the precinct. Although the vacancy rates of both the St Kilda Road and Southbank’s office markets are elevated; Urban Property Australia anticipates the completion of the Anzac railway station in early December and the completion of the rejuvenation project of Southbank Boulevard will stimulate tenant demand for both markets in the medium term. Transactional activity has picked up in both Southbank and St Kilda Road office markets with more than $350 million sold in 2025 to date, with both precincts recorded their highest level of sales activity since 2019.

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