Melbourne Office Market
Last Tuesday Melbourne turned up the heat. Nothing like inspecting office buildings when it is 37 degrees. But by early evening, things had started to cool down just in time for the CoreNet Global State of the CRE markets event at The Executive Centre at Collins Place. Thanks to Annabel McFarlane of JLL and Simon Conie of C&W for being part of the panel, and for sharing their time and insights.
As the southerly rolled in, it looked a little gloomy outside but the mood inside was upbeat and everyone was keen to hear the state of the Melbourne CBD office market.
Melbourne has been a little lacklustre of late but finally we are seeing positivity. Vacancy may have crept up a little to 19% but more importantly, the market experienced positive net absorption of 28,029 m2 in the second half of 2025 (PCA figures), the first healthy absorption since 2022. Better still, this is close to the long-term (35 years) 6-monthly average.
Why the change? Why the positivity? 2025 is behind us, deals are generous, and decisions are starting to be made. The market is firmly in the tenants favour and if there ever was a time to change the office, now is it.
One notable shift is the centralisation of tenants back to the CBD. This extra demand will help bring back some life to the CBD and especially its retail sector. St Kilda Road will be the one to transform itself into something other than an office market.
As for the supply crisis? There are plenty of alternatives from which to choose however the more space a lessee needs, the harder it becomes. That has always been the case. The less talked about supply concern is structural vacancy; buildings becoming obsolete. This was raised several years ago as something to look out for, but now it is becoming real.
Rents are slowly rising and the magnitude depends on quality and location. Incentives are still high and are such an integral part of the market. Even when vacancy was 3-4 % incentives were still 25-30%.
In all, a great event and a good story at the start of the year. Here’s to seeing the positivity return and Melbourne getting itself out of the doldrums.
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