Melbourne Office Market Dynamics Q2 2026

• Vacancy in the Melbourne CBD continued to rise, driven by occupier contraction and backfill from newly completed stock, with demand remaining below long-term averages.
• The supply pipeline is thinning considerably, with two completions delivered over the quarter and under-construction stock set to reach its lowest level in over two decades following Q3 2026.
• Capital market activity remained subdued, with limited transaction evidence and yield decompression anticipated over the near term, though liquidity may improve following November's state election.

The CBD headline vacancy rate was 20.5%, representing 1.1 million sq.m. of unoccupied vacant stock. Vacancy levels reflected contraction within the small tenant cohort (<1,000 sq.m.), which contributed 8,200 sq.m. of negative absorption, alongside backfill associated with stock completions.

The Melbourne CBD office market recorded net absorption of -6,300 sq.m. over the quarter. Over the last 12-months, net absorption totalled 23,900 sq.m., remaining below the 10-year annual average of 28,300 sq.m.

Two project completions were recorded over Q2 2026, delivering a combined 48,000 sq.m. to the CBD market. GPT's 51 Flinders Lane delivered 29,000 sq.m. at a pre-commitment rate of 35.9%, while the first stage of Cbus Super's 435 Bourke Street delivered 19,000 sq.m. entirely pre-leased to the Commonwealth Bank of Australia. Following the anticipated second stage completion of 435 Bourke Street in Q3, underconstruction stock will reach its lowest level since 2001 at 10,000 sq.m. across one project.

One office transaction above AUD 5.0 million was recorded in the Melbourne CBD over Q2 2026 for AUD 55.0 million. Prime yields were unchanged over the quarter at 5.88%–8.50%, however, values held due to lack of transactional evidence and yield decompression is likely over the remainder of 2026 amidst challenging market conditions.

The near-term demand outlook remains soft, with significant contraction and consolidation risk as occupiers navigate uncertain business conditions and an evolving political climate. The supply pipeline is thinning considerably, with no new development expected following Q3 2026. JLL forecasts slight decompression on the lower end of the Melbourne CBD prime yield range over the remainder of 2026. Capital market liquidity is expected to improve following November's state election, with greater clarity anticipated regarding future Victorian business conditions.