• Transactional activity in Melbourne’s office market has been subdued with limited sales recorded in 2026 to date, with only $450 million of Melbourne offices have been sold;
• The total Melbourne CBD office vacancy rate increased to 19.0%, its highest rate since 1997 and higher than all other major Australian CBD office markets;
• Victoria’s total employment growth, continued to ease from historical levels, with 26,000 additional jobs added across the state, but a decline of 63% recorded 12 months earlier.

Office Market Summary

Although tenant demand has improved with the level of new supply exceeding take-up, the vacancy rate of the Melbourne metropolitan office market remains above average, increasing over the past six months. Over the year to March 2026, Victoria’s total employment growth, continued to ease from historical levels, with 26,000 additional jobs added across the state, but a decline of 63% recorded 12 months earlier. Tenant movement remains focused on quality accommodation where buildings offer better amenities for staff with office occupancy remaining relatively modest. Urban Property projects that tenant demand while remaining selective on stock will remain subdued in light of the emerging conflict in the Middle East.

Sales Volume / Yields

As has been the case for the past four years, transactional activity in Melbourne’s office market has been subdued with limited sales recorded in 2026 to date. Over the first quarter of 2026, only $450 million of Melbourne offices have been sold, albeit higher than the sales recorded in the first quarter of last year. Based on the volume of sales recorded in the first quarter, the Melbourne office market is on track for well below-average year of office sales activity, constrained by continued investor caution in the Melbourne office market. The vast majority of sales recorded in 2026 to date were outside of the CBD and in the Metropolitan market, accounting for 75% of all of Melbourne’s office transactional volume. Reflecting the cautious investor environment on the state of the CBD office market, less than $40 million of CBD office stock has been transacted in 2026 to date and similar to the broader market may be set for the lowest volume of sales in 20 years. Given the limited sales volume and continuing uncertainty on the sector, average prime metropolitan office yields have risen to 7.5% with secondary yields averaging 9.15%. Urban Property expects Melbourne office yields are nearing their peaks however the spread between secondary assets is likely to continue to widen.

Melbourne Office Investment Activity

Supply

Urban Property is currently tracking 65,000 square metres of new office projects currently under construction in the metropolitan office market. Of all the total stock currently under construction in the metropolitan office market, only 48% is already committed. Much of the focus of the new development remains focused on the City Fringe with the precinct accounting for 82% of all new metropolitan office stock projected to be completed in the next three years. While tenant demand is firming, albeit still below its long-term average, and the level of new supply peaking in the Melbourne metropolitan office market in the short term, Urban Property projects that while the vacancy rate has peaked, levels are likely to remain elevated as tenants continue to consider CBD options capitalising on the attractive leasing terms on offer and the completion of the Melbourne Metro Tunnel rail project. With vacancy levels projected to remain elevated; looking ahead, the development pipeline is forecast to slow as high construction costs and funding requirements are likely to constrain new supply for the medium term.

Tenant Demand

Over the year to March 2026, Victoria’s total employment growth, continued to ease from historical levels, with 26,000 additional jobs added across the state, but a decline of 63% recorded 12 months earlier. In line with the softening labour market, Victoria’s unemployment rate increased to 4.8% as at March 2026, up from 4.3% recorded a year earlier. With business confidence hitting its lowest level in five years, jobs advertised in Victoria has also eased over year to be 20% lower than two years earlier and 8% lower than its 10-year average; in comparison job ads in Queensland, Western Australia and South Australia are all sitting at least 29% above their 10-year averages. Although leasing activity has picked up in the past six months, demand continues to be outpaced by new supply. Tenant movement remains focused on quality accommodation where buildings offer better amenities for staff with office occupancy remaining relatively modest. Urban Property projects that tenant demand while remaining selective on stock will remain subdued in light of the emerging conflict in the Middle East.

Vacancy / Rents

Although tenant demand has improved with the level of new supply exceeding take-up, the vacancy rate of the Melbourne metropolitan office market remains above average, increasing to 15.5% in January 2026 up from 14.2% in September 2025. While the development pipeline is projected to moderate over the next three years coupled with a higher level of metropolitan office withdrawals, Urban Property research forecasts that the vacancy rate of the metropolitan office has peaked for the short term, albeit with modest improvements given the tempered tenant demand and competitive leasing terms on offer in other markets. Over the 12 months to January 2026, prime metropolitan office rents marginally increased while secondary metropolitan office rents declined marginally over 2025. Looking ahead, Urban Property Australia forecasts that prime rents have stabilised for the short term with tenant demand subdued. In contrast, secondary office rents are projected to decline even more as occupiers seek to capitalise on better quality space which is highlighted from the recent trend of tenant moves coupled with increasing risk of obsolesce.

Total Office Vacancy by Market

CBD, St Kilda Road & Southbank Office Markets

According to the Property Council of Australia, the total Melbourne CBD office vacancy rate increased to 19.0% as at January 2026 (up from 17.9% in July 2025), 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 13.8% and Brisbane at 11.8% – which both recorded increases in vacancy rates. Melbourne’s CBD office market increased by 100,618 square metres over the six months to January 2026, an all-time high. While the size of Melbourne’s CBD office market increased through the year to January 2026, this was driven by the completion of refurbished stock rather new developments. Looking ahead through to 2028, the pipeline of new supply is expected to deliver almost 175,000sqm of new office space across the Melbourne CBD, less than half the long-term average. According to the PCA, the Melbourne CBD office market recorded positive net absorption of 28,029 square metres in the six months to January 2026, leading a total of 29,475 square metres absorbed over the whole 2025 calendar year, having previously recorded four consecutive calendar years of negative net absorption. While Melbourne CBD office rents continue to increase, albeit marginally as outgoings rise; incentive levels remain at historical highs. Incentives are projected to remain at their relatively high levels through this year, reflecting the number of prime office vacant opportunities.

Outside of the CBD, the vacancy rate of the Southbank office market decreased, falling to 15.0% as at January 2026, the third consecutive fall with no stock added to the precinct. Elsewhere the vacancy rate of the St Kilda Road office market increased in the six months to January 2026, to 31.6%, an all-time high for the precinct. Although the vacancy rates of both the St Kilda Road and Southbank’s office markets are sitting at above-average levels; Urban Property Australia anticipates the recent opening of the Anzac railway station and redevelopment of offices for residential development will result in an improvement of total vacancy levels. Reflecting the constrained investor appetite for Victorian offices, sales activity in the St Kilda Road in 2026 to date totalled $80 million with no sales recorded in the Southbank office market this year yet.

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