Melbourne tenant representation

As at July 2026, Melbourne CBD vacancy was 18.9%, marginally down from 19.0% in January, and remains the highest of any Australian capital city CBD. With total stock of 5.3 million sqm, around one million sqm of office space is vacant.

New supply added 1.3 percentage points to vacancy over the six months. This was more than offset by stock withdrawals, which removed 0.9 points, and positive tenant demand, which removed 0.5 points. Prime vacancy (19.0%) sits above secondary (18.6%), making Melbourne one of only two major CBDs where prime vacancy is higher.

More space is set to return to the market. Close to 100,000 sqm of backfill is expected over 2027 and 2028, including space released through the Victorian Government’s CBD consolidation. Relocations into 435 Bourke Street, due in Q4 2026, will also leave backfill elsewhere in the CBD.

For tenants, vacancy is unlikely to tighten in the near term. Prime options in particular remain deep, keeping negotiating leverage with occupiers.

Melbourne’s development pipeline is close to complete. 435 Bourke Street (62,500 sqm) is due in Q4 2026, followed by 720 Bourke Street (29,080 sqm) in Q2 2027, after which no major new projects are expected until the early 2030s. As construction slows, backfill takes its place. The Victorian Government plans to vacate close to 100,000 sqm across 121 Exhibition Street, 8 Nicholson Street and 50 Franklin Street over 2027 and 2028, adding to an already substantial pool of available space.

As a result, vacancy is unlikely to have peaked, even with tenant demand improving. Backfill is expected to keep upward pressure on vacancy through to 2028, before stock withdrawals and the lack of new construction support a gradual recovery ahead of the next development cycle. For tenants, choice and negotiating leverage should hold for at least the next two years, although large occupiers seeking brand-new premium space will have limited options until the 2030s.

As at July 2026, Melbourne CBD sublease vacancy had declined materially, from 64,000 sqm in January to 45,000 sqm, equivalent to 0.9% of total stock. Availability is now below the historical average, although Melbourne continues to record the highest volume of sublease space among the major Australian CBD markets.

Sublease space remains an attractive alternative to direct leasing, typically offering discounted effective rents, existing fitouts and shorter lease terms. This continues to provide cost savings and flexibility, particularly for tenants seeking near-term solutions or project space.

As at July 2026, Melbourne CBD demand had improved, with net absorption of 26,779 sqm over the first half of the year, following several years of weak or negative demand. By grade, demand was heavily concentrated in A-grade, which recorded 53,460 sqm of net absorption. Premium (–14,983 sqm), B-grade (–4,990 sqm) and C-grade (–6,913 sqm) all recorded negative absorption.

At a precinct level, the Eastern Core (+18,911 sqm) and Flagstaff (+15,455 sqm) led net absorption, while the Western Core (–10,634 sqm) was the weakest precinct. Docklands recorded modest positive absorption of 1,500 sqm.

The concentration of demand in A-grade reflects a continued preference for quality accommodation, while negative absorption across Premium and secondary grades shows that demand remains uneven across the market.

Commitments made during Q3 2026 include:

- MACS – 321 Exhibition Street (North Eastern) – 4,461 sqm

- Michelin – 30 Convention Centre Place (South Wharf) – 1,300 sqm (negotiated by Tenant CS)

- Sage Family Law – 469 La Trobe Street (Flagstaff) – 731 sqm

- Williams Winter – 555 Lonsdale Street (Western Core) – 640 sqm

- Rodd & Gunn – 226 Flinders Lane (Civic) – 544 sqm

Office assets are returning to market in the Melbourne CBD after a record low in sales. Only $74m of major transactions took place over the first three quarters of 2026. Heading to market in Q4 is $2bn of office stock, including 11 Exhibition Street, a 50% stake in Olderfleet at 477 Collins Street, a 50% stake in CBW and the 60 Collins Street development site. Some owners are selling to repair their balance sheets, including Suntec REIT, which is selling its Olderfleet stake to cut debt. Buyers remain cautious, with major investors avoiding Melbourne over high vacancy, elevated incentives, work-from-home uncertainty and property taxes.

With government backfill still to come and vacancy near 19% for several years, the wave of buildings coming to market suggests some owners aren’t banking on a quick recovery. For tenants, it’s a sign that favourable leasing conditions could last longer than current forecasts suggest.

Landlords are increasing investment in third-space amenity across Melbourne CBD buildings in response to growing demand from tenants and employers for greater functionality outside the traditional tenancy. Larger shared boardrooms are increasingly being replaced by smaller meeting rooms offered on a pay-per-use or first-come, first-served basis, giving tenants access to additional meeting capacity without carrying that space within their permanent footprint.

Demand is also broadening beyond meeting and collaboration spaces toward wellness-focused amenity. Mini gyms, recovery areas and purpose-built rooms for rest, faith, parents and first aid are becoming more common, alongside continued investment in end-of-trip facilities including bike storage, showers and EV charging.

For tenants, these facilities can reduce the need to replicate certain functions within their own tenancy while supporting employee experience and workplace attendance. As employers place greater emphasis on attracting staff into the office, the quality and functionality of third-space amenity is becoming a more important consideration when comparing buildings.

The Victorian Government’s proposed right to work from home has stalled ahead of the state election. The Bill would give eligible employees the right to work from home two days a week where reasonable. It passed the Legislative Assembly in July, and following the change of Premier, its start date had already been pushed back from September 2026 to July 2027.

In September, the Legislative Council referred the Bill to a select committee and deferred debate until the committee reports. With no report delivered, the Bill lapsed when Parliament expired on 3 November. Labor has committed to legislating a work-from-home right if re-elected, so the outcome now rests on the 28 November election.

The uncertainty matters for Melbourne, which has the highest CBD vacancy in the country at 18.9%, with significant government backfill still to come.

Whatever the result, hybrid work is already shaping space decisions. As leases approach expiry, businesses are increasingly sizing their next premises on actual office attendance rather than headcount. For tenants, the practical response is to plan for uncertainty: base space requirements on attendance data, and negotiate flexibility, such as contraction options, break clauses and shorter terms, so the footprint can adjust if a work-from-home right is legislated.

As noted by Jared Kroeger, a renewed shift toward A-Grade buildings is starting to emerge across the Melbourne CBD, particularly in assets that offer stronger workplace amenity and a more considered occupier experience.

“Tenants are still cost-conscious, but many are now looking more closely at how a building supports staff experience day-to-day. Buildings with strong amenity (whether that’s third spaces, upgraded lift lobbies, or end-of-trip facilities) are standing out. It’s less about a traditional flight-to-quality, and more about being selective. Tenants are willing to move up the quality curve, but only where the value is clear.”

H1 2026 leasing data supports this trend, with A-Grade the only major grade to record positive net absorption, while Premium, B-Grade and C-Grade all went backwards.

Despite this demand, A-Grade availability has grown. A-Grade vacancy rose from 20.6% in January to 20.8% in July, representing 564,198 sqm, as new supply added more space than tenants absorbed. Prime stock accounts for almost three quarters of all vacant space across the CBD. The depth of available A-Grade accommodation has created strong competition between landlords, providing tenants with access to higher-quality buildings, strong incentives and increasingly competitive fitted options.

The combination of significant availability and competitive terms is allowing tenants to achieve better value for their occupancy cost, with higher-quality accommodation becoming increasingly attractive relative to lower-grade alternatives. Tenants are taking advantage of these conditions, but with A-Grade vacancy still rising, it remains a highly competitive market for landlords rather than a constrained market for tenants.

From 1 January 2026, the Melbourne congestion levy on off-street parking rose sharply, with Category 1 (CBD) rising from $1,750 to $3,030 per bay per year and Category 2 increasing from $1,240 to $2,150. The Category 2 area has also expanded into Burnley, Cremorne, South Yarra, Windsor and parts of Richmond, Abbotsford and Prahran, while the Queen Victoria Market area moved to the lower Category 2 rate.

For tenants with significant parking requirements, the increase can materially affect total occupancy costs where the levy is passed through via parking charges or other property costs. The expansion is particularly relevant when comparing CBD and fringe locations, as several inner-eastern precincts that previously sat outside the levy are now subject to the Category 2 rate. Parking requirements and associated costs should therefore be considered alongside rent, incentives, transport access and staff catchments when assessing future leasing options.

Fitted space continues to lease ahead of vacant space, with a clear hierarchy emerging in the sub-300 sqm market. Well-designed, modern spec suites are leasing faster than older or more generic fitouts, as smaller tenants prioritise quality, convenience and avoiding upfront fitout costs.

Older spec suites are still leasing but typically require stronger incentives or landlord contributions towards refresh works to compete with newer, better-presented options. For tenants, the depth of fitted options provides an opportunity to compare not only rental terms, but the quality and usability of the existing fitout and the overall cost of occupation.

ESG credentials remain an important consideration for Melbourne tenants, particularly larger corporates with sustainability targets and reporting requirements. Buildings with strong NABERS ratings, modern services, and better staff amenity continue to attract interest, particularly across A-Grade stock, where demand has improved materially over the past six months.

The significant availability of A-Grade space is providing tenants with greater access to buildings with stronger ESG credentials without necessarily moving to the Premium end of the market. This aligns with the broader shift toward A-Grade, while B-Grade demand remained negative.

For tenants, ESG is increasingly considered alongside building quality, amenity and overall value rather than in isolation. The depth of available A-Grade stock means tenants can be more selective and incorporate sustainability requirements into a broader assessment of workplace quality and occupancy cost.