• Transactional activity across Melbourne’s office markets surpassed $2 billion for the first time since 2022 supported by increased activity in the CBD;
• While tenant demand improved, with the level of new supply exceeding take-up, the vacancy rate of the Melbourne metropolitan office market remains stubbornly elevated, increasing to 15.5% in January 2026;
• Sales activity in the St Kilda Road reached its highest volume of sales since 2019 with more than $250 million transacted in the market.

Office Market Summary

Sales volume across Melbourne’s office markets surpassed $2 billion for the first time since 2022 supported by increased activity in the CBD. Transactional activity of Melbourne offices totalled $2.1 billion in 2025, 50% higher than levels recorded in 2024 albeit total volume remains below the long-term average. While institutional investors remain relatively subdued, residential developers were active in 2025 with a number of offices purchased across the sub-markets for repurposing, capitalising on the modest tenant demand environment and soft investor appetite. While tenant demand improved, the level of new supply exceeded take-up, resulting in the vacancy rate of the Melbourne metropolitan office market increasing.

Sales Volume / Yields

Transactional activity across Melbourne’s office markets surpassed $2 billion for the first time since 2022 supported by increased activity in the CBD. Transactional activity of Melbourne offices totalled $2.1 billion in 2025, 50% higher than levels recorded in 2024 albeit total volume remains below the long-term average. CBD-based offices accounted for 67% of the total sales volume boosted by a number of significant sales where there were four sales exceeding $150 million led by the sale of 750 Collins Street for more than $380 million. Interestingly, sales activity in the St Kilda Road reached its highest volume of sales since 2019 with more than $250 million transacted in the market – and the only market to record above-average transactional activity in 2025. While Urban Property research recorded more than $400 million of sales in the Melbourne metropolitan office market, its level also remains below the long-term annual average like the other sub-markets. While institutional investors remain relatively subdued, residential developers were active in 2025 with a number of offices purchased across the sub-markets for repurposing, capitalising on the modest tenant demand environment and soft investor appetite. As at December 2025, yields continue to remain steady with average prime metropolitan office yields at 7.65% and secondary yields averaging 9.25%. Urban Property expects Melbourne office yields have reached their peaks however investors remain cautious.

Melbourne Office Investment Activity

Supply

Urban Property recorded 65,000 square metres of new office projects completed across the Melbourne metropolitan office market in 2025, 62% lower than levels recorded in the previous year as new supply activity continues to tighten. Currently Urban Property is tracking a further 68,000 square metres over the next three years currently under construction with the bulk of the new supply focused in the City Fringe precinct. Currently there are no new projects under construction in either the Outer East or South East with tenants remaining reluctant to pre-commit to new metropolitan developments given the higher rental requirements. As witnessed by increased acquisition activity of residential developers, Urban Property expects offices requiring significant capital expenditure will increasingly to be withdrawn or sold for alternative uses with the State government further encouraging residential development across 60 train and tram zone activity centres.

Melbourne Metropolitan New Office Supply

Tenant Demand

Over 2025, Victoria’s total employment growth, continued to ease from historical levels, with 59,000 additional jobs added across the state, but a decline of 42% recorded 12 months earlier. Likewise, Victoria’s unemployment rate increased to 4.6% as at December 2025, up from 4.4% recorded a year earlier. While business confidence is recovering, jobs advertised in Victoria has also eased over year to be 5% lower than 12 months previously and 10% lower than its 10-year average; in comparison job ads in Queensland, Western Australia and South Australia are sitting 25% above their 10-year averages. Although leasing activity has picked up in 2025, it has been 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 continue to improve as business confidence gathers momentum – which has reached its highest level since 2022.

Vacancy / Rents

While tenant demand improved with the level of new supply exceeding take-up, the vacancy rate of the Melbourne metropolitan office market remains stubbornly elevated, increasing to 15.5% in January 2026 up from 14.2% in September 2025. With the development pipeline 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. Given the elevated vacancy rate of the Melbourne metropolitan office market, similarly rents have remained relatively stable over the past year and quarter and incentives continue to remain at historical highs. Looking ahead, Urban Property Australia forecasts that metropolitan office rents for prime stock will modestly increase while secondary office rents are projected to remain under downward pressure with multiple options for tenants to relocate to better quality offices.

CBD, St Kilda Road & Southbank Office Markets

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 2025) and remains close to its highest rate in 30 years. 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% – which both recorded increases in vacancy rates. 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. 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, its first period of positive net absorption in three years, however still significantly below the average level of 10,000 square metres. Interestingly, in the six months to July 2025, B-grade office stock outperformed all other grades in the Melbourne CBD. Although tenant demand for Premium space in the six months to July 2025 was positive, A-grade occupied space in the Melbourne CBD shrank by almost 15,000 square metres in the six months to July 2025. The pipeline of new supply to 2027 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 Southbank office market decreased, falling to 16.7% as at July 2025, the second consecutive fall with no stock added to the precinct. Elsewhere the vacancy rate of the St Kilda Road office market decreased in the six months to July 2025, to 29.1%, however remains almost double its 10-year average. 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. Buoyed by the evolution of the precinct, sales activity in the St Kilda Road reached its highest volume of sales since 2019 with more than $250 million transacted in the market, boosted by several residential developer acquisitions who accounted for almost half of the sales volume in the market.

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