Conditions in office markets have tightened across the nation as the latest data shows falls in vacancy rates throughout seven of Australia’s eight capitals.

Releasing its latest report, the Property Council of Australia said the overall vacancy rate declined by 0.7 percent over the past six months to go from 8.5 percent in July to 7.8 percent in January.

The star performer is Melbourne, which has seen positive levels of net absorption for eleven consecutive six month periods amid robust economic fundamentals, healthy population growth, a strong sense of liveability and comparatively affordable rents.

Despite net supply additions of 56,622 sqm, vacancies in Melbourne fell from 3.6 percent to ten year lows of 3.2 percent.

Markets also tightened everywhere else bar Hobart, where vacancies edged up from 5.7 percent to 5.8 percent.

Across all markets, net office demand increased by 141,518 square meters – the second highest increase on record in six years.

Going forward, however, markets around the country will be challenged as almost one million square meters of new space is set to come online over the next three years.

Of this, around half will be added in Melbourne.

Property Council of Australia chief executive officer Ken Morrison said conditions around the nation were favourable to landlords.

“Office vacancies have tightened in CBDs across the country, with Melbourne and Sydney now at incredibly low levels,” Morrison said.

“While their headline vacancy results are similar, the supply and demand dynamics of Sydney and Melbourne are really a tale of two cities.

“Both markets have strong economic fundamentals, but the Melbourne CBD has seen both strong supply of new office space and strong demand for that space. In the Sydney CBD the combination of a net withdrawal of office space and a tight market has left demand nowhere to grow into.

“Melbourne CBD added an additional 98,758 sqm of supply during the last six months compared to Sydney’s 28,212 sqm increase.

“Looking ahead, Melbourne will account for half of the additional one million square metres of office space coming onto the Australia’s CBD markets over the next three years.”