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.
According to the PCA, overall vacancy rate in Sydney has spiked to 12.8%, largely driven by 164,552 sqm of new supply being added over the last six months, above the historical average of 74,361 sqm. We believe the true vacancy rate is still higher due to subleasing opportunities, upcoming backfill spaces, and shadow vacancies.
Both Prime and Secondary assets saw an increase in vacancy. Prime (consisting of Premium and A-Grade stock) stands at 13.8%, rising due to the influx of new supply in the second half of 2024. Whereas Secondary assets consisting of B and C-Grade stock stands at 12%, increasing due to lack of leasing activity.
Developments completed in the second half of 2024 totalling to 164,554 sqm included:
Between 2025 and 2027, Sydney CBD is expected to see approximately 252,444 sqm of new office stock delivered - a 54% increase on what was supplied in 2024 alone. However, due to the surge in supply in 2024, the impact of new stock additions in 2025 is expected to be less pronounced.
In 2025, approximately 75,450 sqm of new and refurbished office space is anticipated, including:
In 2026, the Atlassian HQ (75,000 sqm) is set for completion, with 100% pre-commitment. Meanwhile, 2027 will also see the completion of 55 Pitt St and Chifley Tower South, adding a combined 123,000 sqm of office space.
Gross face rents have seen a modest increase for Premium and A-Grade office spaces this quarter, with Premium rents rising by 1.8% to $1,733 per sqm and A-Grade rents increasing by 1.5% to $1,501 per sqm. In contrast, B-Grade rents have declined by 6.7% to $1,100 per sqm, reflecting a continued trend of flight to quality, as demand for lower-grade assets continues to weaken.
Average Gross Incentives have remained high this quarter at 37%. With the continued growth of Gross Face Rents and stable incentive levels, Gross Effective Rents have seen a modest increase for both Premium and A Grade Buildings. Premium Effective rents have risen by 2.1% to $1,092, while A Grade has increased by 1.5% to $961. In contrast, B Grade has declined by 4.9% to $704.
The sublease vacancy rate remained relatively flat in Sydney. It currently represents 1.6% of total vacancy, increasing by 961 sqm over the last quarter to reach 82,010 sqm. Overall, Sydney’s sublease vacancy declined in 2024, largely due to a stronger return-to-office trend, the leasing of several large sublease spaces and the conversion of sublease availablity into new direct leases.
Approximately 92% of sublease space is concentrated in the city core, while other precincts have experienced a decline. The average sublease size has continued to decrease to circa 1,400 sqm, with the Banking and Finance, Education and Training and Tech & IT accounting for the greatest share (circa 46,000 sqm).
In 2024, occupier demand was primarily driven by the financial services and professional services sectors, which accounted for 32% and 25% of total deal volumes, respectively. Demand from the tech sector has slowed, making up 12% of total deals, which we expect to increase as office mandates rise. The majority of activity was concentrated in the CBD core precinct, representing 58% of deal volumes, followed by Midtown at 19%.
Some of the recent notable commitments shaping the Sydney CBD market include:
As mentioned in our 2024 Wrap up, recent data shows a steady return of office workers to CBD workplaces, with attendance nearing pre-pandemic levels. Perth and Brisbane have led this resurgence, with Sydney following. In August 2024, the NSW government mandated public sector employees to work in-office at least three days a week to optimise space use and enhance productivity. Since then, major companies like Woolworths and Amazon have introduced stricter office mandates, with some requiring five days in-office. This trend aligns with broader national and global shifts, including recent return-to-office policies in the U.S.
Sydney has seen office attendance increase from 72% to 76%, with peak attendance on Tuesdays (87% of pre-pandemic levels). As more employees return to the office, companies may need to reassess whether their current space adequately meets their needs. Businesses that downsized during the pandemic may find themselves requiring additional space to accommodate growing in-office teams.
A sustained rise in occupancy could also lead to a tightening of the sublease market, with fewer companies looking to offload excess space. As office attendance continues to climb toward pre-pandemic levels and leasing activity strengthens, we may see businesses committing to longer lease terms in a bid to secure desirable locations. Additionally, companies may invest in fit-out modifications to better support larger teams, enhance collaboration, and optimise workplace efficiency.
As the return-to-office momentum builds, tenants should proactively evaluate their space strategies and work with a tenant rep to ensure they lock in great terms in an evolving office market.
While high vacancy rates continue to affect the CBD, some sub-markets have been hit harder than others. Vacancy rates in the Western Corridor, Southern, and Midtown areas stand at 14%, 14.2%, and 15%, respectively. This has led to a noticeable divergence in incentives, which is impacting effective rental growth. Midtown, South, Western Corridor, and Walsh Bay all recorded negative effective rental growth this quarter, with incentives in these precincts ranging from 39% to 45%.
Hannah Feltham notes an uptick in lease renewals in latter half 2024, among tenants who previously secured space with spec fit-outs. “We've seen a drive in renewals of tenants that initially took space with a spec fit out, provided the space still meets their needs,” Hannah explained.
“By opting to renew their leases, these tenants can fully utilise their incentives as rental abatements resulting in a circa 35% reduction in their current passing rents. This approach offers greater affordability and flexibility, allowing tenants to manage costs more effectively without the immediate expenditure associated with spec fit-outs.”
Sydney’s legal district is shifting its focus away from the traditional court precinct as leading law firms relocate to the newly revamped AMP Building at 33 Alfred Street in Circular Quay. This emerging hub will prominently feature Allens, occupying the top nine floors, alongside other major players such as Lander & Rogers, Maddocks, and Pinsent Masons.
The movement reflects a broader trend of law firms seeking to upgrade their office spaces to boost their corporate image, attract top talent, and encourage a return to in-office work. The relocation of firms like Johnson Winter Slattery and Corrs to the Quay Quarter Tower, and Gadens to Chifley Square, highlights a clear preference for premium, strategically located offices that offer both prestige and enhanced amenities.
Since 2020, 19 of the 25 largest tenants in Sydney CBD have significantly downsized, shedding approximately 191,600 sqm of office space and contributing to 43% of the total vacancy increase since Q1 2020.
Notable reductions include:
Despite these large-scale contractions, demand for high-quality office space remains strong, with smaller tenants backfilling vacancies. Over the past three years, 38% of the 575 companies that relocated upgraded to higher-quality space, with an average floor size increase of 11%, primarily in the 200-250 sqm range. This trend has continued into Q4 2024, with tenants under 500 sqm accounting for more than 40% of new demand in Sydney CBD.
Sustainability has become a central focus for office occupiers, especially in recent years. Tenant CS Director Hamish Mackay notes that strong ESG credentials are mandatory for both local and overseas entities.
With growing emphasis on sustainability, tenants are gravitating towards higher grade assets that boast strong Green Star, NABERS and/or WELL certifications. Beyond ethical considerations, these buildings offer tangible benefits, such as reduced operational costs, the attraction of like-minded businesses, and the allure or retention of employees who prioritise sustainability.
The Atlassian HQ set for completion in 2026, the low carbon sky scrapper is set to pave the way to more sustainable construction of office towers. The low carbon goal will be achieved by using mass timber in places where concrete and steel would normally be used. As attracting and maintaining talent is a core goal for tech industries, the sustainable attraction is set to lure top talent by offering high-quality, environmentally friendly workspaces that align with employee values and corporate sustainability goals.
Office values have continued to decline, now down 21% from their mid-2022 peak, driven by weak tenant demand, the shift to flexible work, and rising interest rates. In March 2024, Mirvac sold its 50% stake in 255 George Street for $364 million - 17% below its peak value - setting a benchmark for future premium office transactions.
The downturn has hit major landlords like Dexus, which reported a $1.5 billion loss. In response, landlords are offloading older office assets to limit exposure to falling values. Despite this, face rents are rising, temporarily supporting property values. However, increasing supply and weak demand will likely sustain market pressure, driving up lease incentives and limiting value growth.
Market conditions indicate that valuations will continue to decline in 2025, as we believe the downturn has not yet peaked. Hannah Feltham notes that “a tangible drop in valuations and transaction prices could prompt landlords to reconsider face rents, potentially triggering the long-anticipated market reset. However, we don’t expect this knock-on effect to materialise until commercial property valuations fall more broadly. Combined with the ongoing flight to quality, B and C-grade assets are likely to be the most affected.”
Vacancy remains elevated in Melbourne CBD, ending the period at an average of 18%. Premium and A Grade vacancy rates have increased this quarter, Premium up from 16.%1 to 16.8%, A Grade from 18% to 18.5% and B Grade saw a decline of 2.6% now standing at 20.3%.
The elevated vacancy rates in Melbourne can be largely attributed to weak tenant demand as total supply injections in 2024 totalled 79,000 sqm (well below the historical average of 180,000 sqm).
Divergence between precincts is clear, with Flagstaff holding the highest vacancy at 27%, followed by Spencer at 22% and Docklands at 20%. On the other hand, the Eastern Core continues to be the most constrained submarket, even as vacancy rates rose by 3.0% to reach 13.8% over the period. This increase was largely attributed to the movement of Australia Post HQ from 111 Bourke St.
As Tenant CS Director, Matthew Pollak, highlighted in our previous Snapshot, the official vacancy figures may not fully reflect the true availability of office space in Melbourne. Matthew noted that agencies closely guard their data which is especially dangerous as even institutional landlords rely on their reports. While vacancy rates are reported, he explained that when factoring in sublease spaces still in use, companies planning to offload excess space, leases expiring within the next 12-18 months, and offices withdrawn from the market for "construction," the actual availability is closer to 27%. This equates to more than 1,000,000 sqm in Melbourne’s CBD alone.
Looking ahead, new stock injections in Melbourne's CBD are expected to be limited until 2026, when around 215,000 sqm of new supply will become available. However, this pipeline may change with circa 330,000 sqm of projects in planning stages with no set completion date. Future supply continues to face pressure from rising construction costs, leading to delays in project timelines.
The rising vacancy rate has kept incentives elevated this quarter, with significant increases YoY for all grades. Premium, A and B grade incentives grew 7.2%, 5% and 4% respectively. The growth in incentives for Premium and A Grade over the past year can be attributed to:
The upward pressure on vacancy rates has influenced both face and effective rents, leading to a gradual decline this quarter, particularly for A and B-Grade assets. B Grade rents experienced a notable decrease of 5.6% to $595, while A Grade saw a more modest decline of 0.3%. In contrast, Premium assets remained stable, marking a consecutive quarterly increase to $850. The outlook for vacancy improvements in Melbourne remains weak, with elevated incentives and declining face rents benefiting tenants through lower effective rents for A and B-Grade properties, while also curbing rental growth for Premium assets.
Matthew Pollak highlights that, similar to vacancy rates, reported incentive figures can be misleading. While incentives of 40%+ are commonly cited as the norm, he notes that landlords and agents often inflate incentives by factoring in pre-spent fit-out costs, sometimes from previous tenants. Additionally, Melbourne’s incentive calculations differ from the rest of Australia, as they are based on Net rent rather than Gross rent (which includes outgoings), making savings appear larger than they are.
The latest reports state that Melbourne's sublease vacancy has decreased in Q4 2024 from 1.6% to 1.2%, ending the quarter at circa 62,148 sqm. This is predominately due to withdrawals of space and changes to direct leases.
However, Pollak points out that the reported figures likely underestimate the true volume of space tenants are eager to offload, whether through subleasing or downsizing at lease expiry. He emphasises that with an average lease term of five years, some tenants are still locked into pre-COVID leases and are actively seeking to adjust their space requirements or reduce rental costs.
Some of the commitments which will shape the future of the Melbourne CBD include:
These relocations will result in a significant amount of backfill space, adding further pressure to vacancy rates. It remains to be seen how quickly these vacancies align with projected figures, or whether landlords will instead remove them from the market under the guise of construction.
Contrary to the national trend, Melbourne's CBD office vacancy rate remained at 18% as of January 2025, the highest among Australia's major cities and 4.3% above the national average. This stagnation is attributed to a significant period of negative demand, marking the highest reduction in office space uptake since 2022. Physical appearance in the office averages 61% of pre-Covid levels, indicating a slower return than in other states. There is a call for the VIC Government to encourage public servants to return to office like other states. Comparative insights from Brisbane, Perth and even Sydney where mandates have been introduced for public servants and public transport initiatives have directly aided in increasing occupancy levels and office attendance.
Melbourne’s office market has likely bottomed out, with vacancy rates remaining at historically high levels and further challenges ahead. The outlook remains weak due to oversupply, downsizing and weak tenant demand.
In the current Melbourne leasing market, fitted spaces continue to attract tenants first, as businesses prioritise convenience and cost savings on initial setup. However, for older fitouts, particularly those around three years old or more, tenants increasingly expect additional incentives, such as rent-free periods or financial contributions toward refurbishments, to make these spaces viable.
Pre-commitment levels for new office developments projected from 2026 onward remain significantly low, with some projects expected to reach completion without pre-commitments due to strategic marketing or asset positioning decisions. Given that much of a development’s funding is typically secured through pre-commitment rates, the “build it, and they will come” approach appears increasingly risky in the current market. Upcoming stock projected for completion in 2025/2026 total circa.158,000 sqm with just 21% of space pre-committed, including:
With economists forecasting that Melbourne’s office vacancy rates may not fully recover until 2032, leasing demand remains weak. Net absorption currently sits at -44,962 sqm, indicating that more office space is becoming vacant than leased.
Looking ahead, Melbourne is set to add 238,100 sqm of new office supply by 2027. Between 600 Collins and 22 William, over 100k sqm of new office space was supposed to be added to the supply, but since those sites sit baron, without construction, it accounts for 23k sqm removed from the market
Construction of future developments has been directly impacted by low levels of pre-commitment, vacancy rates, weak tenant demand and higher cost of construction. 2024 was set to deliver 85 Spring St and 17 Bennetts Ln which have been pushed off to 2025 and 2027. 600 Collins St is now delayed from 2026 to 2028+ and 60 & 52 Collins St and Stage 2 of 555 Collins St has been pushed from 2027 to 2028.
In Melbourne, ESG ratings are gaining prominence, with tenants increasingly favouring buildings with high NABERS ratings and robust green initiatives.
However, despite the growing emphasis on sustainability, cost remains crucial for many tenants. Typically, higher-rated buildings command higher rents, and while ESG considerations are bearing more weight, they are just one of several factors tenants consider alongside cost, location and other priorities.
As most of the negative net absorption in 2024 occurred in the A Grade office space accounting for -57,149 sqm, the secondary market saw a positive net absorption at 3,882 sqm despite ongoing ESG-driven narratives and the national "flight to quality" trend. This suggests that for many tenants in Melbourne, ESG remains a desirable feature, but not at the expense of affordability. As face and effective rents for lower-grade buildings continue to decline, cost remains the dominant factor influencing leasing decisions.
Melbourne office values have declined 27% since their peak in 2022, and the market outlook remains pessimistic, with few sale transactions. Last quarter, two A-Grade assets changed hands, highlighting significant declines in value. 367 Collins St sold for $315 million, reflecting a 26.23% drop from its $415 million book value in 2022, while 655 Collins St was acquired for $110 million, marking a 24.8% decline since December 2023.
No Premium-Grade office towers have been sold to formally recognize the valuation losses many landlords have endured. Matthew Pollak explains, "Like Sydney, the premium buildings in Melbourne’s CBD core appear to be maintaining their book values, but only because they aren’t being sold—doing so would force landlords to realize those losses. Many landlords are now strategically reinforcing their portfolios with these stronger-performing assets. For example, Mirvac has increased the proportion of premium-grade offices in its portfolio to 46%."
High vacancy rates are also weighing on landlord revenues. In the first half of 2024, Dexus marked down its office portfolio by approximately 11%, with its share price dropping 15%. Similarly, the Mirvac Wholesale Office Fund recorded a 14.5% decline in total return and a 12% drop in share price over the past year. Given the weak market performance this quarter—combined with rising incentives and increasing vacancies—recovery is likely to be gradual rather than immediate.
According to Property Council Australia, Brisbane CBD vacancy rate has increased to 10.2% in the second half of 2024. Prime grade buildings, consisting of Premium and A Grade, saw an increase from 7.2% to 8%, while Secondary recorded an increase from 12.9% to 13.4%. Even with the removal of some lower-grade stock, secondary market vacancy rates continue to trend upwards as their price-to-quality value proposition continues to deter tenants over higher-quality options.
As Q4 2024 saw no new completions, the increase in vacancy can be attributed to weaker tenant demand leading to a negative net absorption of -12,646 sqm in H2. Leasing activity has slowed this quarter due to an increase in renewals, large corporates taking longer to make decisions and rising interest rates and higher wages impacting the smaller tenant segment. Looking ahead, we may see vacancy rates rise further in 2025, with 360 Queen St and 205 North Quay expected to come online.
Gross Face Rents have increased across Premium, A and B Grade this quarter ending the year at $1,184, $880 and $746 respectively.
Premium incentives have returned to 35% seen in Q2 2024, decreasing 2 points this quarter. A Grade saw another slight decrease from 40% to 39.5% and B Grade remains stable at 41%.
Although incentives remain elevated, the slight drop this quarter combined the increased face rents and outgoings have impacted the Gross Effective Rents in Brisbane. Premium Gross Effective Rents saw the largest increase with a QoQ increase of 7.8% to $770. A Grade and B Grade have seen more of a modest increase in which stand at $532 and $440.
Sublease availability in Brisbane declined by 3,902 sqm over the last quarter. It remains one of the lowest in the country at circa 0.5% of total stock due to strong leasing activity in the sublease market and the city's limited exposure to financial and tech companies, which are the main contributors of subleasing space nationwide.
Some of the recent commitments shaping the Brisbane CBD include:
The demand in Brisbane CBD this quarter is largely dominated by the Resources sector (24%) followed by Community (17%) and Financial Services (17%).
Brisbane’s CBD is buzzing again, thanks to new policies bringing workers back into the city. The Queensland government’s 50-cent public transport fare has made commuting cheaper, driving an 18.3% jump in public transport use as more people take advantage of the savings.
At the same time, office return mandates are reshaping the workweek, with many companies pushing for four days in-office. Office attendance has climbed from 78% to 88% over the past year, filling up workspaces.
Brisbane’s fringe office market is heating up as more businesses look beyond the CBD for workspace. With rising rents and tighter availability in the city centre, companies are increasingly turning to fringe areas like Fortitude Valley, South Brisbane, and Newstead for more affordable, high-quality office spaces.
This shift is being driven by vacancy rates tightening and limited new supply, Brisbane’s fringe office market is proving to be an attractive alternative for companies looking to expand or relocate.
Smaller tenants (sub 1,000 sqm) are now driving demand for office space. In 2024, demand for sub-500 sqm spaces has surged, outperforming previous years. The majority of deal activity has been in sub-500 sqm suites, with the real demand is for spaces under 300 sqm, as 75.86% of the sub-500 sqm transactions falling within this range. In contrast, deals over 1,000 sqm saw a decline of over 50% in 2024, which can be attributed to limited supply and low demand for this range.
The supply pipeline in Brisbane has remained unchanged over recent quarters, with limited new stock entering the market. Since 2022, a total of 75,100 sqm has been added, including the completion of 80 Ann Street (62,100 sqm) in 2022 and the recent refurbishment of the Christie Centre at 320 Adelaide Street (13,000 sqm). At the same time, secondary stock withdrawals continue, with properties like 150 Charlotte Street and 41 George Street slated for conversion into student accommodation.
As mentioned, 2025 will see the completion of 205 North Quay – Fully pre-committed and 360 Queen Street – 75% pre-committed. Beyond this, only the Waterfront North Tower (72,000 sqm, ~35% pre-committed), due in 2028. Several projects which have been mooted include:
The rising construction costs in Brisbane are significantly inhibiting new office developments, making it increasingly difficult for investors to justify large-scale projects. The ABS has reported a 31.1% increase in construction costs nationwide, while Queensland’s ongoing trades shortage has further strained the sector, limiting new supply. At the same time, Brisbane's office vacancy rate has increased this quarter, adding another layer of uncertainty for developers who may struggle to secure tenants in a market with growing availability.
The Queensland government’s record $89 billion capital program, which includes major infrastructure projects for the 2032 Olympics, is also contributing to the pressure by diverting construction resources away from commercial developments. With higher costs, labour shortages, and rising vacancies, many developers are reconsidering their strategies, prioritizing refurbishments over new builds to mitigate financial risks.
The competition for talent and the push for employees to return to the office are driving Brisbane’s ongoing flight to quality. Businesses are increasingly seeking higher-grade office spaces in prime locations, prioritizing efficient floorplates, high-end fit-outs, and premium amenities.
A growing number of tenants are securing Premium and A-Grade spaces early—either before their current leases expire or before the spaces officially hit the market. This trend highlights the strong demand for top-tier office stock, which remains in limited supply and is likely to put further downward pressure on vacancy rates.
Like other major cities, Brisbane has seen an uptick in tenants seeking buildings with green initiatives. This is further subduing demand for lower-grade assets that are poorly located or positioned. Coupled with rising construction costs and demand for refurbished fit-outs, many secondary landlords are adopting new strategies to attract tenants and reduce their outlay.
Nationwide, the education sector is undergoing significant shifts due to government initiatives that cap student numbers for service providers and restrict entry for foreign students. Decision-makers are holding off on further guidance until the Senate reaches a decision on this cap legislation, which have dampened demand in the sector.
In most Australian cities 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 tenants in commercial negotiations to secure favourable lease terms and savings.
Book a discovery call to find out how we can help you with your next lease negotiation or relocation project.
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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.
According to the PCA, overall vacancy rate in Sydney has spiked to 12.8%, largely driven by 164,552 sqm of new supply being added over the last six months, above the historical average of 74,361 sqm. We believe the true vacancy rate is still higher due to subleasing opportunities, upcoming backfill spaces, and shadow vacancies.
Both Prime and Secondary assets saw an increase in vacancy. Prime (consisting of Premium and A-Grade stock) stands at 13.8%, rising due to the influx of new supply in the second half of 2024. Whereas Secondary assets consisting of B and C-Grade stock stands at 12%, increasing due to lack of leasing activity.
Developments completed in the second half of 2024 totalling to 164,554 sqm included:
Between 2025 and 2027, Sydney CBD is expected to see approximately 252,444 sqm of new office stock delivered - a 54% increase on what was supplied in 2024 alone. However, due to the surge in supply in 2024, the impact of new stock additions in 2025 is expected to be less pronounced.
In 2025, approximately 75,450 sqm of new and refurbished office space is anticipated, including:
In 2026, the Atlassian HQ (75,000 sqm) is set for completion, with 100% pre-commitment. Meanwhile, 2027 will also see the completion of 55 Pitt St and Chifley Tower South, adding a combined 123,000 sqm of office space.
Gross face rents have seen a modest increase for Premium and A-Grade office spaces this quarter, with Premium rents rising by 1.8% to $1,733 per sqm and A-Grade rents increasing by 1.5% to $1,501 per sqm. In contrast, B-Grade rents have declined by 6.7% to $1,100 per sqm, reflecting a continued trend of flight to quality, as demand for lower-grade assets continues to weaken.
Average Gross Incentives have remained high this quarter at 37%. With the continued growth of Gross Face Rents and stable incentive levels, Gross Effective Rents have seen a modest increase for both Premium and A Grade Buildings. Premium Effective rents have risen by 2.1% to $1,092, while A Grade has increased by 1.5% to $961. In contrast, B Grade has declined by 4.9% to $704.
The sublease vacancy rate remained relatively flat in Sydney. It currently represents 1.6% of total vacancy, increasing by 961 sqm over the last quarter to reach 82,010 sqm. Overall, Sydney’s sublease vacancy declined in 2024, largely due to a stronger return-to-office trend, the leasing of several large sublease spaces and the conversion of sublease availablity into new direct leases.
Approximately 92% of sublease space is concentrated in the city core, while other precincts have experienced a decline. The average sublease size has continued to decrease to circa 1,400 sqm, with the Banking and Finance, Education and Training and Tech & IT accounting for the greatest share (circa 46,000 sqm).
In 2024, occupier demand was primarily driven by the financial services and professional services sectors, which accounted for 32% and 25% of total deal volumes, respectively. Demand from the tech sector has slowed, making up 12% of total deals, which we expect to increase as office mandates rise. The majority of activity was concentrated in the CBD core precinct, representing 58% of deal volumes, followed by Midtown at 19%.
Some of the recent notable commitments shaping the Sydney CBD market include:
As mentioned in our 2024 Wrap up, recent data shows a steady return of office workers to CBD workplaces, with attendance nearing pre-pandemic levels. Perth and Brisbane have led this resurgence, with Sydney following. In August 2024, the NSW government mandated public sector employees to work in-office at least three days a week to optimise space use and enhance productivity. Since then, major companies like Woolworths and Amazon have introduced stricter office mandates, with some requiring five days in-office. This trend aligns with broader national and global shifts, including recent return-to-office policies in the U.S.
Sydney has seen office attendance increase from 72% to 76%, with peak attendance on Tuesdays (87% of pre-pandemic levels). As more employees return to the office, companies may need to reassess whether their current space adequately meets their needs. Businesses that downsized during the pandemic may find themselves requiring additional space to accommodate growing in-office teams.
A sustained rise in occupancy could also lead to a tightening of the sublease market, with fewer companies looking to offload excess space. As office attendance continues to climb toward pre-pandemic levels and leasing activity strengthens, we may see businesses committing to longer lease terms in a bid to secure desirable locations. Additionally, companies may invest in fit-out modifications to better support larger teams, enhance collaboration, and optimise workplace efficiency.
As the return-to-office momentum builds, tenants should proactively evaluate their space strategies and work with a tenant rep to ensure they lock in great terms in an evolving office market.
While high vacancy rates continue to affect the CBD, some sub-markets have been hit harder than others. Vacancy rates in the Western Corridor, Southern, and Midtown areas stand at 14%, 14.2%, and 15%, respectively. This has led to a noticeable divergence in incentives, which is impacting effective rental growth. Midtown, South, Western Corridor, and Walsh Bay all recorded negative effective rental growth this quarter, with incentives in these precincts ranging from 39% to 45%.
Hannah Feltham notes an uptick in lease renewals in latter half 2024, among tenants who previously secured space with spec fit-outs. “We've seen a drive in renewals of tenants that initially took space with a spec fit out, provided the space still meets their needs,” Hannah explained.
“By opting to renew their leases, these tenants can fully utilise their incentives as rental abatements resulting in a circa 35% reduction in their current passing rents. This approach offers greater affordability and flexibility, allowing tenants to manage costs more effectively without the immediate expenditure associated with spec fit-outs.”
Sydney’s legal district is shifting its focus away from the traditional court precinct as leading law firms relocate to the newly revamped AMP Building at 33 Alfred Street in Circular Quay. This emerging hub will prominently feature Allens, occupying the top nine floors, alongside other major players such as Lander & Rogers, Maddocks, and Pinsent Masons.
The movement reflects a broader trend of law firms seeking to upgrade their office spaces to boost their corporate image, attract top talent, and encourage a return to in-office work. The relocation of firms like Johnson Winter Slattery and Corrs to the Quay Quarter Tower, and Gadens to Chifley Square, highlights a clear preference for premium, strategically located offices that offer both prestige and enhanced amenities.
Since 2020, 19 of the 25 largest tenants in Sydney CBD have significantly downsized, shedding approximately 191,600 sqm of office space and contributing to 43% of the total vacancy increase since Q1 2020.
Notable reductions include:
Despite these large-scale contractions, demand for high-quality office space remains strong, with smaller tenants backfilling vacancies. Over the past three years, 38% of the 575 companies that relocated upgraded to higher-quality space, with an average floor size increase of 11%, primarily in the 200-250 sqm range. This trend has continued into Q4 2024, with tenants under 500 sqm accounting for more than 40% of new demand in Sydney CBD.
Sustainability has become a central focus for office occupiers, especially in recent years. Tenant CS Director Hamish Mackay notes that strong ESG credentials are mandatory for both local and overseas entities.
With growing emphasis on sustainability, tenants are gravitating towards higher grade assets that boast strong Green Star, NABERS and/or WELL certifications. Beyond ethical considerations, these buildings offer tangible benefits, such as reduced operational costs, the attraction of like-minded businesses, and the allure or retention of employees who prioritise sustainability.
The Atlassian HQ set for completion in 2026, the low carbon sky scrapper is set to pave the way to more sustainable construction of office towers. The low carbon goal will be achieved by using mass timber in places where concrete and steel would normally be used. As attracting and maintaining talent is a core goal for tech industries, the sustainable attraction is set to lure top talent by offering high-quality, environmentally friendly workspaces that align with employee values and corporate sustainability goals.
Office values have continued to decline, now down 21% from their mid-2022 peak, driven by weak tenant demand, the shift to flexible work, and rising interest rates. In March 2024, Mirvac sold its 50% stake in 255 George Street for $364 million - 17% below its peak value - setting a benchmark for future premium office transactions.
The downturn has hit major landlords like Dexus, which reported a $1.5 billion loss. In response, landlords are offloading older office assets to limit exposure to falling values. Despite this, face rents are rising, temporarily supporting property values. However, increasing supply and weak demand will likely sustain market pressure, driving up lease incentives and limiting value growth.
Market conditions indicate that valuations will continue to decline in 2025, as we believe the downturn has not yet peaked. Hannah Feltham notes that “a tangible drop in valuations and transaction prices could prompt landlords to reconsider face rents, potentially triggering the long-anticipated market reset. However, we don’t expect this knock-on effect to materialise until commercial property valuations fall more broadly. Combined with the ongoing flight to quality, B and C-grade assets are likely to be the most affected.”
Vacancy remains elevated in Melbourne CBD, ending the period at an average of 18%. Premium and A Grade vacancy rates have increased this quarter, Premium up from 16.%1 to 16.8%, A Grade from 18% to 18.5% and B Grade saw a decline of 2.6% now standing at 20.3%.
The elevated vacancy rates in Melbourne can be largely attributed to weak tenant demand as total supply injections in 2024 totalled 79,000 sqm (well below the historical average of 180,000 sqm).
Divergence between precincts is clear, with Flagstaff holding the highest vacancy at 27%, followed by Spencer at 22% and Docklands at 20%. On the other hand, the Eastern Core continues to be the most constrained submarket, even as vacancy rates rose by 3.0% to reach 13.8% over the period. This increase was largely attributed to the movement of Australia Post HQ from 111 Bourke St.
As Tenant CS Director, Matthew Pollak, highlighted in our previous Snapshot, the official vacancy figures may not fully reflect the true availability of office space in Melbourne. Matthew noted that agencies closely guard their data which is especially dangerous as even institutional landlords rely on their reports. While vacancy rates are reported, he explained that when factoring in sublease spaces still in use, companies planning to offload excess space, leases expiring within the next 12-18 months, and offices withdrawn from the market for "construction," the actual availability is closer to 27%. This equates to more than 1,000,000 sqm in Melbourne’s CBD alone.
Looking ahead, new stock injections in Melbourne's CBD are expected to be limited until 2026, when around 215,000 sqm of new supply will become available. However, this pipeline may change with circa 330,000 sqm of projects in planning stages with no set completion date. Future supply continues to face pressure from rising construction costs, leading to delays in project timelines.
The rising vacancy rate has kept incentives elevated this quarter, with significant increases YoY for all grades. Premium, A and B grade incentives grew 7.2%, 5% and 4% respectively. The growth in incentives for Premium and A Grade over the past year can be attributed to:
The upward pressure on vacancy rates has influenced both face and effective rents, leading to a gradual decline this quarter, particularly for A and B-Grade assets. B Grade rents experienced a notable decrease of 5.6% to $595, while A Grade saw a more modest decline of 0.3%. In contrast, Premium assets remained stable, marking a consecutive quarterly increase to $850. The outlook for vacancy improvements in Melbourne remains weak, with elevated incentives and declining face rents benefiting tenants through lower effective rents for A and B-Grade properties, while also curbing rental growth for Premium assets.
Matthew Pollak highlights that, similar to vacancy rates, reported incentive figures can be misleading. While incentives of 40%+ are commonly cited as the norm, he notes that landlords and agents often inflate incentives by factoring in pre-spent fit-out costs, sometimes from previous tenants. Additionally, Melbourne’s incentive calculations differ from the rest of Australia, as they are based on Net rent rather than Gross rent (which includes outgoings), making savings appear larger than they are.
The latest reports state that Melbourne's sublease vacancy has decreased in Q4 2024 from 1.6% to 1.2%, ending the quarter at circa 62,148 sqm. This is predominately due to withdrawals of space and changes to direct leases.
However, Pollak points out that the reported figures likely underestimate the true volume of space tenants are eager to offload, whether through subleasing or downsizing at lease expiry. He emphasises that with an average lease term of five years, some tenants are still locked into pre-COVID leases and are actively seeking to adjust their space requirements or reduce rental costs.
Some of the commitments which will shape the future of the Melbourne CBD include:
These relocations will result in a significant amount of backfill space, adding further pressure to vacancy rates. It remains to be seen how quickly these vacancies align with projected figures, or whether landlords will instead remove them from the market under the guise of construction.
Contrary to the national trend, Melbourne's CBD office vacancy rate remained at 18% as of January 2025, the highest among Australia's major cities and 4.3% above the national average. This stagnation is attributed to a significant period of negative demand, marking the highest reduction in office space uptake since 2022. Physical appearance in the office averages 61% of pre-Covid levels, indicating a slower return than in other states. There is a call for the VIC Government to encourage public servants to return to office like other states. Comparative insights from Brisbane, Perth and even Sydney where mandates have been introduced for public servants and public transport initiatives have directly aided in increasing occupancy levels and office attendance.
Melbourne’s office market has likely bottomed out, with vacancy rates remaining at historically high levels and further challenges ahead. The outlook remains weak due to oversupply, downsizing and weak tenant demand.
In the current Melbourne leasing market, fitted spaces continue to attract tenants first, as businesses prioritise convenience and cost savings on initial setup. However, for older fitouts, particularly those around three years old or more, tenants increasingly expect additional incentives, such as rent-free periods or financial contributions toward refurbishments, to make these spaces viable.
Pre-commitment levels for new office developments projected from 2026 onward remain significantly low, with some projects expected to reach completion without pre-commitments due to strategic marketing or asset positioning decisions. Given that much of a development’s funding is typically secured through pre-commitment rates, the “build it, and they will come” approach appears increasingly risky in the current market. Upcoming stock projected for completion in 2025/2026 total circa.158,000 sqm with just 21% of space pre-committed, including:
With economists forecasting that Melbourne’s office vacancy rates may not fully recover until 2032, leasing demand remains weak. Net absorption currently sits at -44,962 sqm, indicating that more office space is becoming vacant than leased.
Looking ahead, Melbourne is set to add 238,100 sqm of new office supply by 2027. Between 600 Collins and 22 William, over 100k sqm of new office space was supposed to be added to the supply, but since those sites sit baron, without construction, it accounts for 23k sqm removed from the market
Construction of future developments has been directly impacted by low levels of pre-commitment, vacancy rates, weak tenant demand and higher cost of construction. 2024 was set to deliver 85 Spring St and 17 Bennetts Ln which have been pushed off to 2025 and 2027. 600 Collins St is now delayed from 2026 to 2028+ and 60 & 52 Collins St and Stage 2 of 555 Collins St has been pushed from 2027 to 2028.
In Melbourne, ESG ratings are gaining prominence, with tenants increasingly favouring buildings with high NABERS ratings and robust green initiatives.
However, despite the growing emphasis on sustainability, cost remains crucial for many tenants. Typically, higher-rated buildings command higher rents, and while ESG considerations are bearing more weight, they are just one of several factors tenants consider alongside cost, location and other priorities.
As most of the negative net absorption in 2024 occurred in the A Grade office space accounting for -57,149 sqm, the secondary market saw a positive net absorption at 3,882 sqm despite ongoing ESG-driven narratives and the national "flight to quality" trend. This suggests that for many tenants in Melbourne, ESG remains a desirable feature, but not at the expense of affordability. As face and effective rents for lower-grade buildings continue to decline, cost remains the dominant factor influencing leasing decisions.
Melbourne office values have declined 27% since their peak in 2022, and the market outlook remains pessimistic, with few sale transactions. Last quarter, two A-Grade assets changed hands, highlighting significant declines in value. 367 Collins St sold for $315 million, reflecting a 26.23% drop from its $415 million book value in 2022, while 655 Collins St was acquired for $110 million, marking a 24.8% decline since December 2023.
No Premium-Grade office towers have been sold to formally recognize the valuation losses many landlords have endured. Matthew Pollak explains, "Like Sydney, the premium buildings in Melbourne’s CBD core appear to be maintaining their book values, but only because they aren’t being sold—doing so would force landlords to realize those losses. Many landlords are now strategically reinforcing their portfolios with these stronger-performing assets. For example, Mirvac has increased the proportion of premium-grade offices in its portfolio to 46%."
High vacancy rates are also weighing on landlord revenues. In the first half of 2024, Dexus marked down its office portfolio by approximately 11%, with its share price dropping 15%. Similarly, the Mirvac Wholesale Office Fund recorded a 14.5% decline in total return and a 12% drop in share price over the past year. Given the weak market performance this quarter—combined with rising incentives and increasing vacancies—recovery is likely to be gradual rather than immediate.
According to Property Council Australia, Brisbane CBD vacancy rate has increased to 10.2% in the second half of 2024. Prime grade buildings, consisting of Premium and A Grade, saw an increase from 7.2% to 8%, while Secondary recorded an increase from 12.9% to 13.4%. Even with the removal of some lower-grade stock, secondary market vacancy rates continue to trend upwards as their price-to-quality value proposition continues to deter tenants over higher-quality options.
As Q4 2024 saw no new completions, the increase in vacancy can be attributed to weaker tenant demand leading to a negative net absorption of -12,646 sqm in H2. Leasing activity has slowed this quarter due to an increase in renewals, large corporates taking longer to make decisions and rising interest rates and higher wages impacting the smaller tenant segment. Looking ahead, we may see vacancy rates rise further in 2025, with 360 Queen St and 205 North Quay expected to come online.
Gross Face Rents have increased across Premium, A and B Grade this quarter ending the year at $1,184, $880 and $746 respectively.
Premium incentives have returned to 35% seen in Q2 2024, decreasing 2 points this quarter. A Grade saw another slight decrease from 40% to 39.5% and B Grade remains stable at 41%.
Although incentives remain elevated, the slight drop this quarter combined the increased face rents and outgoings have impacted the Gross Effective Rents in Brisbane. Premium Gross Effective Rents saw the largest increase with a QoQ increase of 7.8% to $770. A Grade and B Grade have seen more of a modest increase in which stand at $532 and $440.
Sublease availability in Brisbane declined by 3,902 sqm over the last quarter. It remains one of the lowest in the country at circa 0.5% of total stock due to strong leasing activity in the sublease market and the city's limited exposure to financial and tech companies, which are the main contributors of subleasing space nationwide.
Some of the recent commitments shaping the Brisbane CBD include:
The demand in Brisbane CBD this quarter is largely dominated by the Resources sector (24%) followed by Community (17%) and Financial Services (17%).
Brisbane’s CBD is buzzing again, thanks to new policies bringing workers back into the city. The Queensland government’s 50-cent public transport fare has made commuting cheaper, driving an 18.3% jump in public transport use as more people take advantage of the savings.
At the same time, office return mandates are reshaping the workweek, with many companies pushing for four days in-office. Office attendance has climbed from 78% to 88% over the past year, filling up workspaces.
Brisbane’s fringe office market is heating up as more businesses look beyond the CBD for workspace. With rising rents and tighter availability in the city centre, companies are increasingly turning to fringe areas like Fortitude Valley, South Brisbane, and Newstead for more affordable, high-quality office spaces.
This shift is being driven by vacancy rates tightening and limited new supply, Brisbane’s fringe office market is proving to be an attractive alternative for companies looking to expand or relocate.
Smaller tenants (sub 1,000 sqm) are now driving demand for office space. In 2024, demand for sub-500 sqm spaces has surged, outperforming previous years. The majority of deal activity has been in sub-500 sqm suites, with the real demand is for spaces under 300 sqm, as 75.86% of the sub-500 sqm transactions falling within this range. In contrast, deals over 1,000 sqm saw a decline of over 50% in 2024, which can be attributed to limited supply and low demand for this range.
The supply pipeline in Brisbane has remained unchanged over recent quarters, with limited new stock entering the market. Since 2022, a total of 75,100 sqm has been added, including the completion of 80 Ann Street (62,100 sqm) in 2022 and the recent refurbishment of the Christie Centre at 320 Adelaide Street (13,000 sqm). At the same time, secondary stock withdrawals continue, with properties like 150 Charlotte Street and 41 George Street slated for conversion into student accommodation.
As mentioned, 2025 will see the completion of 205 North Quay – Fully pre-committed and 360 Queen Street – 75% pre-committed. Beyond this, only the Waterfront North Tower (72,000 sqm, ~35% pre-committed), due in 2028. Several projects which have been mooted include:
The rising construction costs in Brisbane are significantly inhibiting new office developments, making it increasingly difficult for investors to justify large-scale projects. The ABS has reported a 31.1% increase in construction costs nationwide, while Queensland’s ongoing trades shortage has further strained the sector, limiting new supply. At the same time, Brisbane's office vacancy rate has increased this quarter, adding another layer of uncertainty for developers who may struggle to secure tenants in a market with growing availability.
The Queensland government’s record $89 billion capital program, which includes major infrastructure projects for the 2032 Olympics, is also contributing to the pressure by diverting construction resources away from commercial developments. With higher costs, labour shortages, and rising vacancies, many developers are reconsidering their strategies, prioritizing refurbishments over new builds to mitigate financial risks.
The competition for talent and the push for employees to return to the office are driving Brisbane’s ongoing flight to quality. Businesses are increasingly seeking higher-grade office spaces in prime locations, prioritizing efficient floorplates, high-end fit-outs, and premium amenities.
A growing number of tenants are securing Premium and A-Grade spaces early—either before their current leases expire or before the spaces officially hit the market. This trend highlights the strong demand for top-tier office stock, which remains in limited supply and is likely to put further downward pressure on vacancy rates.
Like other major cities, Brisbane has seen an uptick in tenants seeking buildings with green initiatives. This is further subduing demand for lower-grade assets that are poorly located or positioned. Coupled with rising construction costs and demand for refurbished fit-outs, many secondary landlords are adopting new strategies to attract tenants and reduce their outlay.
Nationwide, the education sector is undergoing significant shifts due to government initiatives that cap student numbers for service providers and restrict entry for foreign students. Decision-makers are holding off on further guidance until the Senate reaches a decision on this cap legislation, which have dampened demand in the sector.
In most Australian cities 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 tenants in commercial negotiations to secure favourable lease terms and savings.
Book a discovery call to find out how we can help you with your next lease negotiation or relocation project.
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