Melbourne CBD’s office market shows signs of stabilisation amid high vacancy, shifting demands
Key points:
- Melbourne CBD’s 2024 vacancy rate remained at 18%, which is the highest since 1997.
- Tenant demand is focused on energy-efficient prime assets, while older stock struggles.
- Only 21% of metro space under construction is pre-committed, signalling tenant caution.
- Premium rents are rising; A-grade rents are falling due to incentives and building outgoings.
- Investment volumes are at a 20-year low, but recovery is projected to emerge by late 2025.
Melbourne’s CBD office market began to show early signs of stabilisation in Q1 2025 after enduring multiple quarters of subdued activity and high vacancy. The demand remains focused on prime-grade and flexible office spaces, while secondary and older stock struggle with weak tenant interest.
Cushman & Wakefield reported that the Melbourne CBD had a net absorption of -44,962 square metres (sqm) in the six months leading to January 2025, a drop from -15,462 sqm in July 2024 due to the removal of 63,412 sqm of office space. A-grade assets accounted for most of these withdrawals, totalling 44,000 sqm, reflecting a market preference for modern office spaces.
Moreover, JLL reported that Australian CBD net absorption reached 163,500 sqm in 2024, the best since 2018, while Melbourne's recovery remained slow. Sublease availability declined across Australia to its lowest since Q2 2020, indicating that businesses have now largely adapted to hybrid working models.
Meanwhile, Urban Property Australia (UPA) noted that Melbourne's CBD vacancy rate held steady at 18.0% as of January 2025—the highest since 1997. Tenant demand remains concentrated in energy-efficient prime buildings as employers seek to create attractive environments that encourage employee return-to-office (RTO) participation.
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