Australian CBD Leasing Markets | Q2 Office Snapshot

Last updated:
Jul 27, 2023
Commercial Real Estate


Liam Drosinos
Liam Drosinos
Data Analyst

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Our latest commercial real estate update provides a snapshot of the Australian CBD office leasing markets. We base our insights on the latest market data and our experience on the ground.

Sydney CBD office market snapshot

Vacancy and new supply

The PCA is reporting that Sydney's CBD commercial property vacancy rate has increased over the last quarter, now at 11.5%. However, we believe vacancy figures could be much higher, especially considering the number of commercial subleases available. 

Over the next 12 months, 120,000 sqm of new and refurbished stock is expected to become available (with 20,000 sqm of this to be contributed by smaller developments, including 121 Castlereagh Street and 32-36 York Street). 

With limited supply in the 2023 pipeline and approx. 42,000 sqm of space to be withdrawn from the market for the Hunter Street Metro Station, many agencies remain upbeat about the market's recovery. But we're confident it will stay a tenant's market for the foreseable future.

Here's why:

Daily office occupancy 

In February 2023, Sydney CBD's office occupancy rate was reported at 61%. Opal data shows that there's been a spike in the number of people travelling to the CBD between 8-9 am on weekdays, increasing from 1,080,000 in April 2022 to 1,500,000 in April 2023. We also know that more companies are pushing for their employees to return to the office five days a week, providing incentives for being on-site. 

Despite this improvement, occupancy still sits well below pre-covid levels, and many of our clients are giving back excess space on expiry to help reduce their leasing costs.

The current occupancy rate also indicates that there's still a lot of underutilised office space on the market. So, many businesses locked into leases are likely riding out their remaining lease tail until they can downsize. 

Large tenants already handing back space

Major companies are finally accepting the shift to hybrid working and downsizing. In Sydney, for example, Commonwealth Bank has made plans to exit their 19,000 sqm space at Darling Park Tower 1, pushing the building's total vacancy to 30,000 sqm. Westpac also plans to hand back circa 16,000 sqm of space at 275 Kent Street, 12 months out from their lease expiry. The company is also subletting 10,000 sqm of its office space in Barangaroo to Vodafone.

Falling office values 

The rise in vacancies is contributing to a fall in commercial property values, with analysts predicting a decrease of circa 20% in the coming months. Dexus Tower at 44 Market Street is a good example of this, with the property selling in June for $393.1 million, 17% less than its December book value. 

Other notable listings currently on the market include 60 Margaret Street and Salesforce Tower (Ping An's 50% stack). So it will be interesting to see the outcome of these sales. 

Despite this, face and effective rents continue to increase to counteract surging construction and fit-out costs and artificially maintain property values. However, this rise is offset by high lease incentives (36% and above) as landlords try to lure tenants to fill vacancies. A tangible fall in valuations and transaction prices could cause landlords to reconsider face rents, potentially triggering a long-anticipated reset. However, we cannot see this knock-on effect happening until valuations of commercial properties fall across the board.

Upcoming expiries and shorter lease terms 

It's been reported that many tenants are downsizing and signing new leases on significantly shorter terms. In 2019, the average office lease term was 41 months (3.5 years). However, this has now dropped to 29 months (2.5 years). 

Previously, landlords preferred to wait for a tenant that they could lock in on a longer lease. However, the market shift means office landlords are bending further to retain or attract tenants, offering shorter leases and high-quality amenities. This further illustrates the tough position landlords are in as they scramble to renew leases to maintain their portfolio values.

The technology and banking industries are downsizing their workforces

At the start of 2022, tech and finance made up 60% of all leasing deals in the Sydney CBD. However, major companies have started cutting back on staff, and many have adopted hybrid work models. So these sectors are unlikely to drive demand for direct space over the next few years, impacting the market and undermining confidence. These industries have also fuelled an uptick in subleasing.

The flight to quality 

As businesses push for a return-to-office and look for ways to attract and retain talent, there's a growing interest in quality fitted spaces that have now become more affordable. This trend has crushed the demand for lower-grade buildings, increasing B-grade vacancy from 11.3% to 12.6% in 12 months.

New supply

Though new supply injections will be limited this year, circa 357,000 sqm is expected to come online in 2024. Notable developments include Metro Martin Tower (75,000 sqm), Martin South Tower (30,000 sqm), and Parkline Place (49,120 sqm). A large percentage of this has already been pre-committed, with a handful of anchor tenants taking out large parcels of space. ‍

For these reasons, the market could get worse before it gets better, which is great news for tenants (particularly those in lower-grade assets currently being left behind in the 'flight to quality).

Rents and incentives

In a bid to maintain property values, gross face rents have continued to increase quarter-on-quarter, with Premium rising from $1,645 to $1,680, A-Grade from $1,360 to $1,385 and B-Grade from $1,085 to $1,100. However, high incentives that average between 30-39% offset these increases.

All grades saw a slight quarter-on-quarter rise in effective rents. This comes off the back of face rent increases and inflationary pressures.


The Sydney CBD is seeing an uptick in sublease space as key industries, particularly the tech sector, rethink their property requirements. The ongoing struggle to attract staff to the office is also a factor.

Sublease availability as a percentage of total stock currently sits at 2.4%, which we estimate to be circa 126,000 sqm. About 95% of this stock is Premium or A-grade.

The best deals we're doing are in the sublease market, where businesses offer excess space at heavily discounted rates to get out of their lease tail.

The savings are so good that it's starting to impact the traditional landlord market. We're witnessing a shift in behaviour as more institutional landlords reclaim their properties through solid surrenders, preferring them to sit vacant at market rates rather than be subleased at 50% of the market rate.

Melbourne CBD office market snapshot

Vacancy and new supply

Melbourne's CBD commercial property vacancy rate has increased y-o-y from 11.9% to 15% as tenants move up the quality curve.

This is reflected in the vacancy movements in Premium and B-grade assets, with Premium decreasing and B-Grade increasing in the same timeframe. 

The East end of the CBD seems to have the most leasing activity, despite a higher price tag on premium buildings. However, tenants are taking up less space than previously indicated. New stock injections over 2020-2021 (550,000 sqm) and 2022 (110,000 sqm) also impacted overall vacancy. 

Melbourne's 2023 development pipeline is smaller compared to previous years, with notable projects to include: 

  • 555 Collins St - 48,000sqm of new space (75% pre-committed) 
  • 500 Bourke St - 44,000sqm of refurbished space (35% pre-committed)

Many agent reports predict that a reduction in new supply, coupled with higher demand, will see the market slowly recover. However, we can't see that happening until 2026 at the earliest.  

Here's why:

Hybrid working 

Melbourne-based companies have embraced hybrid work models (even more so than in Sydney). Q2 figures are so far being withheld, but the city's average office occupancy rate at the end of February was 47%. Though this coincided with the tail end of the Christmas and School Holidays, it indicates excess space in the market that businesses will look to offload on expiry or sooner via sublease

Rialto, for example, has over 23,000 sqm of vacant space due to a mix of tenants reducing their requirements. National Australia Bank has also left about 20,000 sqm vacant at its former Collins Place headquarters and is attempting to sublease an older space at 800 Bourke St.

The spec fit-out market 

We already see a flight to quality in Melbourne, with many tenants preferring to downsize and upgrade their space at attractive terms to lure employees back to the office. Over the past few years, more and more landlords have undertaken speculative fit-outs and building upgrades to make this flight to quality more attractive. However, it's caused a delta between new/refurbished buildings and lower-grade buildings where owners are unwilling to spend the capital upfront.

We're also finding that the construction of spec suits is slowing down as several existing spaces sit vacant, failing to attract tenants. For this reason, we expect the spec suite market to become even more competitive through 2023-24, with 10-20% incentives becoming available on top of the new fit-out to help move vacancies. ‍

Upcoming relocations

Many larger tenants will be looking to downsize and relocate in the next 12-24 months, which could leave several large holes in buildings.

More Melbourne-based businesses are opting for shorter leases and less space. So, filling these gaps with long-term tenants will be challenging, with B-Grade assets at a higher risk. We're also finding that more businesses are willing to take less space at a higher rental rate if the premises will help attract their staff back into the office.


In 2022, national inflation rose from 3.5% to 7.8%, which pushed outgoings up at an alarming rate. This added to the vacancy pressure and forced landlords to carve out further concessions to attract quality tenants. While inflation remains well above the 2-3% inflation target, it has dropped to 6%, which will reduce pressure on outgoings increases.

Market activity 

Market activity has been affected by low business confidence off the back of higher inflation and interest rates. In 2021, for example, the Financial Services industry made up circa 51% of all CBD leasing deals. However, this figure dropped to 34% by the end of 2022 as major companies reduced their headcount and moved to permanent hybrid working arrangements. 

Falling property values

Property valuers forecast that prime CBD office towers in Melbourne will drop in value by as much as 15-20%.

Late last year, REST Super, for example, tried to sell its Melbourne Docklands office building (717 Bourke Street) for circa $490 million. However, the sale was abandoned when bids started rolling in at 15% below the book value.

A widespread drop in property values will pressure landlords to reduce face rents, which, like Sydney, are currently artificially propped up by high incentives.

Rents and incentives

While face rents have remained stable, they're being capped by higher incentives, which have risen across all grades. 

Premium incentives now sit at 40%, and A and B-Grade at 42%. This has led to a quarter-on-quarter decrease in net effective rents for Premium and A-grade assets.

We expect incentives to stay elevated as long as high vacancy rates persist (at least until 2026). However, a decline in property values may mean we see face rents start to come down. The best deals are still ahead of us!

Psst… you can learn about the differences between net and gross rent here.


Melbourne CBD's sublease availability is being reported at 2.2% of total stock. We're finding that many larger companies are still looking to sublease their excess space, offering large floorplates and high-quality fit-outs at relatively low rents and on long lease tails.

High subleasing availability is expected to remain throughout 2023-24.

Brisbane CBD office market snapshot

Vacancy and new supply

Brisbane's overall CBD commercial property vacancy rate has decreased over the last quarter, now sitting at 11.6%.

Over the last six months, Premium vacancy tightened off the back of the flight-to-quality trend and major tenant relocations (including Suncorp, who moved to 80 Ann Street).

However, Premium vacancy rates are expected to increase again this year when 7,200 sqm of KPMG's backfill space becomes available.

B-grade vacancy also contracted during this time.This has been primarily fuelled by increased demand from smaller tenants who, before Covid, could not afford space in the CBD. Other driving factors include an uptick in the number of B-grade assets being repositioned to A-Grade standard, more supply in the sub-500 sqm market and landlords leveraging spec fit-outs as a point of difference.

A-grade vacancy remains the highest of all grades, which can be attributed to the injection of new stock, the flight-to-quality trend, tenants' downsizing or cost-cutting, and movements from major tenants. However, the Queensland Government's search for additional space, tenant upgrades from B to A-grade space, and withdrawal of stock for refurbishment is expected to reduce vacancy levels in this grade.

Trends affecting the Brisbane market

New supply

Since the completion of 80 Ann Street in 2022, there has been a lack of new construction in the Brisbane market. And over the next three years, less than 100,000 square meters of office space is expected to come online, with 72% of it already pre-committed, including: 

  • 205 North Quay (45,000sqm - fully pre-committed) Completion 2024 
  • 360 Queen St (45,000sqm - 34% pre-committed) Completion 2025 

Limited supply and higher demand from SMEs may decrease the overall vacancy rate to under 10% in 2024.

However, from there, an injection of new supply and refurbished space should push the vacancy rate back into low double digits until 2027.

Right-sizing of workspaces 

Brisbane occupancy rates still sit below post-covid levels, which indicates that there may be excess space out there that businesses will eventually shed on expiry. That's because office vacancy is calculated based on whether a lease is in place rather than whether people use the entirety of their space daily.

Flight-to-quality trend

The war on talent and return-to-office are two big-ticket objectives fuelling the ongoing flight to quality. We’re seeing an appetite for higher-grade buildings in good locations with efficient floorplates, quality spec fit-outs and premium amenities. This is eradicating the demand for lower-grade assets that are poorly located or positioned.

Amid this trend and rising construction costs, landlords are adopting strategies, such as refurbishing existing fit-outs, to help reduce their outlay.

Refurbishments and redevelopments

Over the next two years, smaller buildings, such as 41 George Street, 150 Charlotte Street and 140 Elizabeth Street, may be withdrawn for refurbishment or potential redevelopment, placing downward pressure on Brisbane's vacancy rate.

More activity from larger tenants

Over the past year, tenant demand has diversified, with increased activity from larger tenants who have finally settled on their long-term real estate plans.

However, smaller tenants remain at the core of Brisbane's leasing market, accounting for 31% of leases by location.

Rents and incentives

Given limited supply and inflationary pressures, Gross Face and Effective Rents have increased Y-o-Y. Significant movement can be seen for Premium and B-Grade assets, where Premium Gross Effective Rent increased from $550 to $605 (10%) and $345 to $370 (7.2%), respectively, triggered by tightening vacancy.

Though incentives remain elevated to entice tenants to relocate, they have remained stable Q-o-Q, now sitting between 39-45%, depending on the grade and location. Where incentives have seen a slight decrease, however, is in spaces with existing fit-outs. This is due to tenants using their incentive to discount their rent instead of constructing a new fit-out.

Over the next decade, we anticipate that rents will increase while incentives will decrease as Brisbane reaps the benefits of interstate migration and the Olympics.


Sublease space in Brisbane now represents circa 0.3% of total stock - the lowest in the country. This can be attributed to strong leasing activity and the city's limited exposure to financial and tech companies, the main drivers of subleasing nationwide.

Get in touch with Tenant CS

The long and short of it? It’s a tenant’s market and will be for the foreseeable future. 

Landlords are competing to secure quality occupants on long leases and are more flexible than they have been in years. Opportunistic tenants are taking advantage of favourable market conditions by renegotiating terms in their existing space or relocating to a better building.

To secure the best terms, tenants need only find the soft spots in the market and develop their strategy around landlord motivators.

But the landscape is challenging to navigate alone. 

Even in a favourable market, there's more to negotiate, and tenants need access to the whole market to get the best deal.

Tenant CS is an independent tenant advisory firm that exclusively represents our client's interests in commercial negotiations to secure tenant-centric lease terms and savings. We cater to companies across Australia, Singapore and the greater Asia-Pacific region and have offices at the heart of the Sydney CBD, Melbourne and Singapore. 

Book a discovery call to find out how we can help you with your next lease negotiation or relocation project.

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