Melbourne Office Market Turns a Corner as Tenant Demand Strengthens and Future Supply Dries Up
Tenant enquiry has hit its strongest levels in years, just as Melbourne’s development pipeline begins to thin dramatically, according to Knight Frank’s latest research.
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Melbourne’s CBD office market is showing early signs of a turning point, with Knight Frank recording 83 tenant representation briefs in Q2 2026, following 81 in Q1; the strongest start to a year since 2022.
At the same time, after three office projects scheduled for completion by the end of 2026, no new office construction is currently anticipated.
Knight Frank Partner and Head of Research and Consulting, Victoria, Dr Tony McGough, said the market’s fundamentals are improving despite ongoing challenges on the investment side.
“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 increased by 5.2% over the past year, McGough noted, despite vacancy rates hovering around 19% and expected to rise further through 2026.
He said the lack of future construction activity is setting up tighter market dynamics ahead, as demand continues to recover.
Prime net face rents rose to an average of $773 per square metre across the CBD, up 5.2% year-on-year and 0.8% over the quarter, while incentives edged up marginally in Q2 to average 48.1%.
Rental growth remains concentrated in the better locations and better buildings.
Knight Frank Partner and 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.”
Hale added that despite incentives remaining elevated, quality buildings continue to outperform, and tenants with major requirements are increasingly recognising the benefit of securing accommodation well ahead of their lease expiries.
Investment activity, however, remains subdued.
Only $286 million in Melbourne CBD office transactions have been recorded year-to-date, while prime yields softened by a further 13 basis points over the quarter to average 7.02%;Â their highest level since 2013.
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A new study models a potential $80.6 billion lift in Australian GDP after a decade, as national testing shows a decline in Year 10 digital literacy.
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Australia trails Singapore and Malta in a new Commonwealth index, while national testing shows fewer than four in 10 Year 10 students meet the standard for digital literacy.
Australia has ranked third among 56 Commonwealth countries for youth AI readiness, with researchers estimating that artificial intelligence could lift the level of Australian GDP by $80.6 billion after a decade under their middle scenario.
The Ayre Think Tank released the index at the Commonwealth Heads of Government Meeting in Antigua and Barbuda. Australia scored 71 out of 100, behind Singapore on 77.6 and Malta on 75. The United Kingdom followed closely on 70.8, with Canada fifth on 70.2. Only 15 countries reached the study’s benchmark of 53.
What the $80.6 billion figure measures
The researchers applied International Monetary Fund estimates for broad groups of economies to Australia’s 2025 GDP. The resulting scenarios put the potential lift in Australian GDP after 10 years at between $40.9 billion and $120.3 billion, with $80.6 billion representing the midpoint.
The figures describe how much larger the economy could be at the end of the period under each scenario. They represent a change in the level of GDP in year 10.
Digital literacy falls as schools roll out AI tools
Australia scored 8.7 out of 10 for access to technology and 7.5 for digital, data, media and AI capability. Separate national testing found that 37 per cent of Year 10 students met the proficient standard for information and communications technology literacy in 2025, down from 46 per cent in 2022. About one in 10 students reported receiving substantial teaching on AI-related tasks. National assessment results
The report points to two state initiatives aimed at building those skills. Queensland began rolling out an AI education platform in state schools in 2026, while Victoria introduced free specialist training for workers looking to develop AI skills or move into related roles.
The index draws on 1,128 sources and examines the conditions facing people aged 15 to 29, including access to technology, education and pathways into work. Australia had usable data for 76 of the 102 indicators used in the rankings. The researchers found too little comparable evidence to score an eighth area covering critical judgement and people’s ability to exercise control over AI systems.
Professor C. Justin Robinson, campus principal of the University of the West Indies’ Five Islands Campus, said young people should be equipped to question and improve AI tools and supported in building alternatives suited to their needs.
The report calls for affordable access to technology, more practical education and stronger links between training, employment and entrepreneurship. It also urges governments and educators to support AI tools suited to local languages and give young people ways to challenge automated decisions.
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