Login
Melbourne CBD office rebound signals investor opportunity
Melbourne’s office leasing space has been steadily recovering, with tenant demand rising for premium assets, signalling opportunities for investors to reap higher yields as many shift to cash flow-focused strategies.
New data has shown that tenant enquiries for Melbourne’s office market have been steadily rising, with Knight Frank reporting its strongest levels in years.
The firm’s latest Melbourne CBD Office State of the Market report showed that in Q2 2026, the firm recorded 83 tenant representation briefs, following 81 in Q1, marking the strongest start to a year since 2022.
The data comes as commercial agents have been seeing heightened demand in the wake of the federal government’s property tax reforms and the changes to self-managed super funds (SMSF).
Meanwhile, following changes to the capital gains tax discount, some investors have been focusing on generating cash flow and prioritising rental returns to achieve wealth creation.
Knight Frank partner, head of research and consulting – Victoria, Dr Tony McGough, said Melbourne’s office market fundamentals appeared to be stabilising.
“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,” he said.
"Melbourne CBD prime face rents have now increased by 5.2 per cent over the past year. This is despite vacancy rates hovering around 19 per cent and expected to rise through 2026.”
However, he said there was a growing disconnect between current market sentiment and the medium-term supply outlook, with a lack of future construction activity creating conditions for tighter market dynamics.
According to the firm, rental growth has continued to be concentrated in more desirable areas and buildings.
Over the quarter, prime net face rents increased to an average of $773/sqm across the CBD, up 5.2 per cent year-on-year and 0.8 per cent.
Meanwhile, lease incentives rose slightly over Q2 2026, now averaging 48.1 per cent.
Prime office yields rose by 13 basis points to 7.02 per cent during the quarter, the highest level since 2013, reflecting ongoing downward pressure on office values.
Despite leasing activity strengthening, the firm said volumes remain subdued, with just $286 million in Melbourne CBD office transactions recorded year-to-date.
Knight Frank partner, joint head of office leasing – Victoria, Simon Hale, said there was a growing number of occupiers testing the market and taking advantage of favourable leasing conditions.
“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,” Hale said.
Want to see more stories from trusted news sources?
Make Smart Property Investment a preferred news source on Google.
Click here to add Smart Property Investment as a preferred news source.