Melbourne’s Office Market Future

Melbourne's office market has moved a long way since we published 'Why Melbourne Office' in June 2024, and most of the shift in our thinking has come in just the last few months. Our latest report is a deep dive into what's changed, driven by three forces: AI, backfill and centralisation. 

A few of the key themes:

• AI is reshaping office demand. As adoption accelerates, so does the premium on attracting and retaining talent, widening the flight to quality space. We see this ushering in a period of structural change, much like the early 2020s.
• Melbourne's pool of assets that meet tenant expectations keeps shrinking, held back by limited new development and under-investment in existing stock.
• A wave of Eastern Core backfill will absorb spillover demand and delay the broader recovery we had previously expected from 2027.
• Rental growth will stay soft across most of the market, with incentives higher for longer. A select group of assets will outperform on the strength of their sub-precinct position, and we see room for incentives to compress by up to 10 percentage points while still meeting entrenched spec suite expectations. 
• Centralisation is running well ahead of expectations, with more than 71,000 sqm of gross activity over the past two years as tenants chase quality and the affordability still on offer in parts of the CBD.
• Downtown Toronto sits about two years ahead of Melbourne in the cycle. As its supply pipeline tightens, absorption and rental growth are accelerating. We expect Melbourne to follow, at a smaller scale.