MELBOURNE CBD OFFICE - MARKET REPORT, Q1

having acquired offices on behalf of offshore capital. Offshore purchasers were dominated by those from Singapore and Hong Kong.

While prime yields rose slightly through 2022, reflecting the increasing cost of capital for purchasers, they remain well below the 10-year average. As at January 2023, average prime office yields range between 4.5% and 5.5%. Mirroring the tenant preference for prime assets, the yield premium between prime and secondary grade offices has also begun to widen with secondary yields ranging between 5.0% and 6.0%.

Given the recent extended period of limited investment opportunities, investor demand for office assets is likely to remain robust across the Melbourne CBD, with confidence improving considering occupancy levels likely to increase through 2023 along with the positive long-term outlook for rental growth of the Melbourne CBD office market in comparison to other Australian CBD office markets.