_Melbourne office market turns a corner as tenant demand strengthens and future supply dries up

Melbourne, Australia – Melbourne’s CBD office market is showing early signs of a turning point in demand, with tenant enquiry reaching its strongest levels in years just as the future development pipeline begins to thin dramatically, according to Knight Frank’s latest Melbourne CBD Office State of the Market report.

Knight Frank recorded 83 tenant representation briefs in Q2 2026, following 81 briefs in Q1, marking the strongest start to a year since 2022.

At the same time, after the three office projects scheduled for completion by the end of 2026, no new office construction is currently anticipated.

Knight Frank Partner, Head of Research and Consulting, Victoria, Dr Tony McGough, said Melbourne's office market fundamentals are improving despite ongoing challenges in the investment market.

"What we're seeing is a growing disconnect between current market sentiment and the medium-term supply outlook,” he said. “Tenant demand has strengthened significantly, rents continue to rise and, once the current development pipeline is completed, there is very little new stock coming behind it.

"Melbourne CBD prime face rents have now increased by 5.2% over the past year. This is despite vacancy rates hovering around 19% and expected to rise through 2026. However, the lack of future construction activity creates the conditions for tighter market dynamics in the future as demand continues to recover."

Prime net face rents increased to an average of $773/sqm across the CBD, up 5.2% year-on-year and 0.8% over the quarter, while incentives rose marginally over Q2 2026 to now average 48.1%. Rental growth continues to be concentrated in the better locales and better buildings.

Knight Frank Partner, Joint Head of Office Leasing, Victoria, Simon Hale, said occupiers were becoming more active as business confidence improved.

"The leasing market has become noticeably busier over the first half of 2026,” he said. “We're seeing a growing number of occupiers testing the market and taking advantage of favourable leasing conditions, particularly for high-quality space in premium and A-grade buildings.

"Despite incentives remaining elevated, quality buildings continue to outperform. As the future supply picture becomes more constrained, tenants with major requirements are increasingly recognising the benefit of securing accommodation well ahead of their lease expiries."

While leasing activity is strengthening, investment volumes remain subdued, with only $286 million in Melbourne CBD office transactions recorded year-to-date. Prime yields softened by a further 13 basis points during the quarter to average 7.02%, their highest level since 2013.

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For further information, please contact:
Vanessa De Groot – Marketing & Communications, Knight Frank
Vanessa.degroot@au.knightfrank.com +61 410 460211

Notes to Editors
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, the Knight Frank network has 600+ offices across more than 50 territories and more than 20,000 people. The Group advises clients ranging from individual owners and buyers to major developers, investors, and corporate tenants. For further information about the Firm, please visit www.knightfrank.com.