Melbourne’s central business district (CBD) office market is showing early signs of a major recovery, with tenant enquiry hitting its strongest levels in years just as the city’s construction pipeline prepares to completely dry up.
According to Knight Frank’s latest Melbourne CBD Office State of the Market report, the commercial sector recorded 83 tenant representation briefs in the second quarter of 2026.
Coming off the back of 81 briefs in the first quarter, this represents the busiest start to a calendar year for the city’s commercial leasing market since 2022.
The surge in leasing activity coincides with a looming supply cliff. Once the three commercial office projects currently scheduled for completion wrap up by the end of 2026, no new office construction is anticipated across the CBD.
Knight Frank Partner and Victorian Head of Research and Consulting, Tony McGough, said a growing disconnect has emerged between wider market sentiment and medium-term supply realities.
“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,” McGough said.
Average prime face rents across the CBD jumped by 5.2 per cent year-on-year to hit $773 per square metre, despite overall vacancy rates hovering around 19 per cent.
Knight Frank noted that premium rental growth remains heavily concentrated in higher-quality, well-located A-grade and premium buildings.
Knight Frank Victorian Joint Head of Office Leasing, Simon Hale, said improving business confidence is driving occupiers back into the market to lock in top-tier space while conditions remain favourable.
“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.
While leasing conditions are tightening, the report found that the investment market remains subdued, recording just AU$286 million in CBD transactions year-to-date as prime yields softened to an average of 7.02 per cent.
“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,” Hale said.
