Melbourne’s office vacancy levels remain elevated relative to Sydney and Brisbane, and while headlines continue to focus on soft demand, the underlying market signals are becoming more nuanced.
Late 2025 market data shows the first signs of stabilisation after several years of subdued demand. The CBD is showing recovery in prime grade assets, with modest growth in net effective rents and improving leasing activity in quality buildings where tenants prioritise ESG performance, location and flexibility.
At the same time, Melbourne recorded one of its strongest absorption results since 2022, adding more than 28,000 sqm of space in Q4 2025 - even as vacancy rose to around 19% due to new supply completions.
This combination - firming demand at the top end of the market and high headline vacancy - defines Melbourne’s rebalancing moment.
As LPC Director, Adrian Gerber, puts it:
“It looks like tenants have all the time in the world - but the conditions that create leverage are shifting underneath them.”
A market still soft on the surface, but tightening in the right places
Melbourne’s CBD continues to hold the highest vacancy rate of any major Australian capital, sitting between 17.9% and 19% across 2025.
But this headline number masks the real picture:
- Premium and A-grade space in the eastern core is stabilising, with selective evidence of rising face rents and early signs that incentives are beginning to plateau.
- Secondary assets and those in secondary locations remain under pressure, with widespread vacancy and elevated incentives.
- Centralisation is accelerating - organisations are returning from fringe markets into the CBD in pursuit of higher-quality space, amenity and transport access. Market data shows more than 34,600 sqm of positive absorption in early 2025, driven in part by occupiers relocating inward.
- Independent reporting shows net absorption turning positive after several years of contraction, driven mainly by midsized occupiers and consolidation into higher-quality buildings.
Demand is returning - but unevenly.
The market is bifurcating between assets that can compete in a hybrid future and those that cannot.
As Adrian summarises:
“Melbourne looks soft, but prime options are disappearing faster than most occupiers realise.”
What occupiers should do now - Before the market rebalances
To futureproof commercial accommodation decisions in a market that is stabilising unevenly, occupiers should prioritise three actions:
1. Use today's incentives to secure tomorrow's optionality
Incentives remain some of the most generous in the country, especially for secondary buildings. But tightening in prime assets is emerging. With limited future supply, incentives at the top end will not remain at current levels.
Early movers should secure:
- substantial landlord contributions
- elevated incentive packages
- favourable rent review mechanisms
- flexible conditions that will become rarer as demand firms
This leverage window is open - but narrowing.
2. Upgrade quality while the premium gap is narrow
Hybrid work has changed how people use space. Quality, amenity and ESG credentials now drive performance and attendance. With premium vacancy declining and centralisation accelerating, today's rental gap between prime and secondary stock is unlikely to hold.
Early upgrades deliver:
- improved workplace experience
- better attraction and retention outcomes
- access to contiguous floors that will become scarce
- superior long-term resilience
- Recent market evidence shows prime rents increasing even in a high vacancy environment - a sign of structural demand for top tier assets.
3. Prioritise flexibility, not just cost
Melbourne’s unique RTO profile means long-term footprint certainty remains elusive. The most future-focused occupiers are prioritising agility, not just lower rent.
This includes:
- expansion and contraction rights
- break clauses
- structured relocation pathways
- sublease optionality
- early access concessions
As LPC Advisor Dylan O'Donnell puts it:
“If the next three years look different from the last three - flexibility is the only way to stay futureproof.”
Futureproof Today: The LPC Perspective
Melbourne's office market isn't simply soft - it is rebalancing.
Under the surface of high headline vacancy sits:
- tightening premium supply
- stabilising demand
- narrowing incentives
- a limited future supply pipeline
- renewed CBD centralisation
Occupiers who act now - with the right intelligence - can secure cost certainty, quality, and optionality before the market shifts.
LPC's conflict-free model ensures decisions are based solely on business need, not landlord influence or market noise.
As LPC Director Dylan O'Donnell notes:
“Futureproof Today is a discipline. The choices occupiers make in this moment will define their agility and competitiveness through the next cycle.”
Sources
• Cushman & Wakefield – Melbourne MarketBeat Reports
• CBRE – Melbourne CBD Office Figures Q4 2025
• Knight Frank – Melbourne CBD Office Market Report 2025
• JLL – Melbourne CBD Market Dynamics & Absorption Trends
• Commo.
