Melbourne Office Vacancy Reaches Inflection Point

For the first time in six years, Melbourne's office market is showing signs of genuine recovery — not just stabilization, but momentum. The overall vacancy rate dropped to 21.4% in the first quarter of 2026, down from a peak of 27.8% in late 2023. The sublease overhang, which at one point exceeded 8 million square meters, has shrunk to under 4 million. And perhaps most tellingly, landlords are beginning to push back on rent concessions.

This is not a V-shaped recovery. It is something more durable: a gradual repricing of space as tenants accept that hybrid work is here to stay, and that the office is not dead — it is simply different.

The most active segment is Class A space in the 15,000–40,000 square foot range. These are not the trophy towers that dominated headlines in 2019; they are well-located, efficiently designed buildings with good transit access and modern HVAC. Tenants are paying attention to air quality, ceiling heights, and natural light in ways they never did before. The pandemic trained a generation of office workers to notice their environment, and they are voting with their feet.

For lease negotiations, the shift means leverage is slowly migrating back to landlords — but only for the right space. Secondary buildings in peripheral submarkets still face an existential crisis. We are advising tenants to move decisively on quality space while concessions remain available, and advising landlords to invest in the improvements that differentiate their buildings from the commodity pack.

The next 18 months will determine which owners emerge with repositioned assets and which are left holding obsolete space. The window for decisive action is narrow, and it is closing from both ends.