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’s office market is facing a significant shift, with the overall vacancy rate sitting at 12.8% as of January 2025, the highest level recorded in 28 years. This sharp increase has been driven primarily by a surge in new supply, with 164,552 sqm of office space delivered over the past six months, more than double the historical average of 74,361 sqm.
A Grade Buildings are currently experiencing the highest vacancy rate at 15.2%, followed by B Grade at 12.9% and Premium at 10.9%. While A Grade stock saw a supply boost in the second half of 2024, demand failed to keep pace, resulting in a net absorption of -59,355 sqm. This indicates that more space was vacated than was leased. B Grade also recorded negative net absorption of -17,671 sqm. In contrast, Premium space has remained more resilient, posting a strong positive net absorption of 125,182 sqm. This indicates ongoing demand for high-quality office offerings despite broader market softness.
Midtown, Southern, and the Western Corridor, are facing the highest average vacancy rates, between 14% and 15%, pointing to weaker demand for these areas. The Core precinct, on the other hand, shows a more balanced performance with an average vacancy of 11.3%, driven by a stronger uptake of Premium assets, while Walsh Bay and The Rocks report even lower vacancy rates of 7.8% and 9.1% respectively.
Around 75,450 sqm of new and refurbished space is forecast to come online this year, including:
Between 2025 and 2027, another 252,444 sqm of new office space is set to be added in the Sydney CBD, including the Atlassian HQ (75,000 sqm, 100% pre-committed), and 55 Pitt St and Chifley Tower South, which will deliver a combined 123,000 sqm.
The Sydney office market continues to demonstrate a clear flight to quality, seen with divergent performance across asset grades. For Premium, gross face and effective rents rose by 2.6% and 5.1% YoY respectively, showing resilience despite ongoing stock injections. A-Grade rents, on the other hand, softened, with face rents down 0.7% QoQ and effective rents declining 1.9% QoQ. This was primarily driven by a combination of weaker tenant demand (evidenced by net absorption of –59,355 sqm) and a significant influx of supply in H2 2024. B-Grade face rents have surged to 14.1%, but effective rents fell 1.0%, underscoring landlord’s use of incentives to preserve face rents amid subdued leasing activity.
Incentives varied by grade: Premium incentives fell 1.1% QoQ, reflecting stronger demand, while A and B-Grade incentives rose 0.4% and 2.1% respectively amid rising vacancy. This is creating attractive opportunities for tenants to secure better terms, despite growth in headline face rents.
Sydney’s sublease availability sits at 1.43% of total stock (75,910 sqm), with 92% concentrated in the city core. Average sublease size has dropped to 1,400 sqm, with banking, finance, education, and tech sectors accounting for 46,000 sqm. Notable tranches include:
With growing diversity and motivated landlords, sublease space offers tenants a chance to secure prime locations at competitive rates.
Demand remains elevated for high-quality space in the core, particularly upper floors of Premium buildings, driven by proximity to key amenities, public transport, and better views. In contrast, more cost-sensitive tenants are increasingly exploring peripheral markets such as the western corridor, southern, and midtown areas.
Occupier demand is primarily led by Financial Services (55%) and Legal & Accounting (6.5%).
Some of the recent notable commitments shaping the Sydney CBD market include:
As noted in our 2024 Wrap Up, recent data shows a steady return of office workers to the CBD, with attendance in some cities nearing pre-pandemic levels. In August 2024, the NSW government mandated public sector employees work in-office at least three days per week to optimise space use and productivity. Since then, major companies like Woolworths and Amazon have also implemented stricter mandates, with some requiring their staff to come in five days a week, mirroring broader national and global trends.
Sydney’s office attendance has risen from 72% to 76%, with Tuesdays peaking at 87% of pre-pandemic levels. This uptick may prompt businesses, particularly those that downsized during the pandemic, to reassess whether their current space is meeting their evolving needs.
However, Tenant CS Director Hamish Mackay notes:
"It's a mixed bag. While there's been a fairly public push in the media from organisations around returning to the office, the reality is that a hybrid model of working from home and in-office will coexist for at lease the next five years. Flexibility and lifestyle choices continue to drive staff preferences, which will influence tenant decisions and contribute to more sublease and under-utilised office space."
With hybrid work likely here to stay, long-term space planning will remain complex. Tenants should proactively review their space strategies and work with a tenant rep to remain competitive in a changing market.
Clear differences are emerging across precincts, not just in availability, but in value. The City Core remains in strong demand, and tenants looking to secure space there should be prepared to pay top dollar. Incentives are tightening for premium-grade assets in these areas, as landlords grow more confident in attracting long-term commitments from quality tenants.
In contrast, submarkets like the Western Corridor are offering far more competitive leasing terms. According to Tenant CS Associate Director, Hannah Feltham:
"Vacancy in this precinct has hit 14%, pushing landlords to offer more aggressive deals to attract tenants. In some recent cases, tenants have secured full speculative fitouts and rental abatements of 25-30% on five-year leases, bringing total incentive packages closer to 50%."
The choice for occupiers is becoming clearer: securing a high-profile address in the Core will come at a premium. But for those prioritising value, flexibility, and turnkey space, alternative CBD precincts offer more attractive terms. In the current environment, aligning lease decisions with broader business goals and market conditions is critical.
Hannah Feltham also notes an uptick in lease renewals during the latter half of 2024 and into Q1 2025, particularly among tenants who originally secured spaces with speculative fitouts:
"More and more tenants are choosing to renew their leases, provided the existing fitout continues to suit their operational needs. By renewing, businesses can use their incentives as rental abatements, cutting their passing rent by about 35%. This makes it more affordable and flexible for tenants to manage costs without the upfront expense of new fitouts. Many companies are combining these 'stay-put' renewals with growth plans, expanding within their existing buildings by taking on extra floors or adjacent space instead of moving. This illustrates a growing trend of preserving the value of existing fitouts while efficiently scaling in a familiar space."
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 underscores this, highlighting a clear preference for premium, strategically located offices that offer both prestige and enhanced amenities.
In a recent Tenant CS study that tracked 75 mid- and top-tier law firms in Sydney, 39% had downsized, 60% upsized, and their average tenure in one building was 7.5 years (driven by high relocation and fitout costs). With such long commitments, engaging a tenant rep is crucial, not just to negotiate favourable terms, but to stay aligned with market trends and maximise long-term value.
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 future Atlassian HQ (due 2027) is a strong example of this trend, with the low carbon skyscraper set to pave the way towards more sustainable office towers. The low carbon goal will be achieved by using mass timber in place of concrete and steel. As attracting and maintaining talent is a core goal for tech companies, the building is expected to lure top talent by offering high-quality, environmentally friendly workspaces that align with employee values and corporate sustainability goals.
Melbourne CBD’s vacancy rate remains elevated at circa 18%. Premium and A-Grade vacancy both ticked higher in January, with Premium increasing from 16.1% to 16.8% and A Grade from 18% to 18.5%. B Grade, on the other hand, saw a 2.6% decline to 20.3%. The high vacancy is underpinned by slow tenant demand, despite modest new supply in 2024 (79,000 sqm).
Precinct-level divergence continues with Flagstaff recording the highest vacancy (27%), followed by Spencer (22%) and Docklands (20%). The Eastern Core remains the lowest vacancy despite an increase of by 3.0% to 13.8%, largely due to the relocation of Australia Post from 111 Bourke Street in H2 2024.
However, Tenant CS Director, Matthew Pollak, maintains that headline vacancy figures understate the real availability of office space. Factors like shadow vacancy, sublease space still in use, short-term lease expiries, and stock withdrawn under the guise of construction, mean that actual availability could be closer to 27%, equating to more than 1 million sqm across Melbourne’s CBD.
New completions in the Melbourne CBD remain limited, with no office deliveries in Q1 2025 and just 79,000 sqm added in 2024, well below the 180,000 sqm historical average.
Melbourne’s rising vacancy rate has kept incentives elevated this quarter. Y-o-Y, Premium, A and B-Grade incentives grew 7.8%, 5.6% and 5.6% respectively. Growth in incentives for Premium and A Grade can be attributed to:
Despite continued upward pressure on vacancy, face rents increased modestly across all grades this quarter, rising 0.4% for Premium, 0.6% for A Grade, and 0.2% for B-Grade.
However, elevated incentive levels have led to a decline in effective rents across the board. B-Grade assets saw the sharpest drop in effective rents, down 2.6% to $301, followed by A Grade at -0.5% to $370. Premium effective rents also declined by 0.9% to $454, despite growth in previous quarter.
The outlook for Melbourne remains tenant-friendly with persistent high vacancy and strong incentives supressing effective rental growth across all grades.
Sublease vacancy decreased across both CBD and non-CBD markets in 2024. Despite this recent drop off, Melbournian tenants still leverage the cost and flexibility benefits of subleasing the most. Data now reveals that sublease vacancy in Melbourne remains above the historical average, currently sitting at 1.6% (82,864 sqm), the highest of any Australian city.
As of H2 2024, the market recorded a trailing 6-month net absorption of -44,962 sqm, extending a broader trend of weakening demand. Good quality B Grade stock was the only segment to show signs of resilience, though this was driven by tenants relocating from fringe and suburban markets rather than organic demand growth.
At the precinct level, results were mixed. The Eastern Core recorded the largest contraction at -62,811 sqm, influenced by several large tenant moves. Flagstaff, Spencer, and Docklands also reported modest declines. However, this was partly balanced by strong take-up in the Civic and Western Core precincts, where more than 20,000 sqm was leased, highlighting ongoing demand for well-located, competitively priced space. Coupled with elevated vacancy and incentives, these conditions continue to favour tenants.
Some of the commitments which will shape the future of the Melbourne CBD include:
Recent relocations will result in a significant amount of backfill space, adding further pressure to vacancy rates.
While overall vacancy rates have seen a marginal decrease, there has been little change in the availability of quality leasing options. Interestingly, B-Grade was the only segment where more space was leased than vacated, with five out of seven precincts recording gains. Fringe tenants relocating to the CBD are likely behind the uplift, suggesting that, for some tenants, location is taking priority over quality, a trend that could build in 2025.
However, insights from our Tenant CS Director, Jared Kroeger, suggest a different reality:
"While headline figures indicate improvement, many B-Grade buildings throughout the CBD continue to experience high vacancy. These landlords will know they need to put their hands in their pockets to secure or retain good tenants, so that's where the opportunities lie."
Melbourne's CBD office vacancy rate remains the highest amongst Australia’s capital cities, 4.3% above the national average. This 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. In response to this, there’s 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 and public transport initiatives have been introduced, have shown government action to be effective in increasing occupancy levels and in-office attendance.
Melbourne’s office market has likely not yet bottomed out, with vacancy rates remaining at historically high levels and further challenges ahead. The outlook remains uncertain due to oversupply, downsizing, and weak tenant demand.
Fitted spaces continue to attract savvy 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 remain significantly low, with some projects expected to reach completion without pre-commitments due to strategic marketing or asset positioning decisions.
Upcoming stock set for completion between 2025-2027 totals c,174,000 sqm. Just 21% of this new space is pre-committed, including:
With much of a development’s funding tied to pre-commitments, the 'build it and they will come' approach is becoming increasingly risky. Office demand remains weak, vacancy rates are not expected to recover until 2032, and net absorption is being reported at -44,962 sqm, indicating that more office space is becoming vacant rather than leased. Coupled with rising construction costs, this has delayed several future projects, including, 85 Spring St, 17 Bennetts Ln, Stage 2 of 555 Collins St and 600 Collins St (now mooted).
In Melbourne, ESG ratings are gaining prominence, with tenants increasingly favouring buildings with high NABERS ratings and robust green initiatives. However, these buildings typically come at a higher grade, and cost.
With lower-grade offices seeing a modest increase in demand, and A-Grade buildings accounting for most of the space given back to the market in 2024, this suggests that for many Melbourne tenants, 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. In Q4 2024, two A-Grade assets changed hands with significant declines in value:
No Premium-Grade office towers have been sold to formally recognise the valuation losses many landlords have endured. Tenant CS’ Matthew Pollak explains, "Like Sydney, the premium buildings in Melbourne CBD’s core appear to be maintaining their book values, but only because they aren’t being sold, doing so would force landlords to realise 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, rising incentives and increase in vacancies, recovery is likely to be slow.
Brisbane CBD's overall vacancy is being reported at 10.2% as of January 2025. The increase in vacancy seen in H2 2024 was attributed to subdued tenant demand and negative net absorption of -12,646 sqm, indicating that more space has been vacated than leased. This comes because of slower decision-making from large corporates, a rise in lease renewals, and economic pressures, such as higher interest rates and wage costs, that are impacting smaller tenants.
No new completions occurred in Q1 2025, leaving total stock levels steady. However, looking ahead, new supply is set to come online later in the year, including:
The broader supply pipeline remains limited, with most future completions either already committed or part of government backfill strategies. Major developments such as Waterfront North Tower (due 2028) and mooted projects, including 101 Albert Street and 60 Queen Street, are unlikely to reach market before 2028, reinforcing medium-term scarcity of new prime stock.
Gross Face rents continued their upward trajectory in Q1 2025, with Premium rising to $1,194, A Grade to $916, and B Grade to $770. This represents a modest quarterly increase of 0.8% for Premium, 4.1% for A-Grade, and 3.2% for B-Grade.
Incentives have slightly shifted, with Premium and A-Grade decreasing to 34.5% and 37.5% respectively, while B-Grade saw the largest drop in incentives (down -1.5%). Coupled with the rise in face rents, these incentive adjustments, though small, have contributed to a further uplift in Effective Rents, with Premium increasing 1.5% Q-o-Q to $781, A-Grade spiking by 7.6% to $573, and B-Grade jumping up 5.6% to $465.
The sustained increase in face rents combined with steady or slightly declining incentives signals ongoing competition for quality space, particularly in higher-grade assets.
Sublease availability in Brisbane declined over the course of 2024 but rose to 0.7% of total stock (approximately 17,000 sqm) by January 2025. According to the Property Council of Australia, Brisbane and Melbourne were the only capital cities with sublease vacancy rates that exceed their historical averages. Notable sublease offerings in the second half of 2024 included:
For tenants seeking flexible arrangements with significant cost savings, now appears to be a good time to consider subleasing.
Some of the recent commitments shaping the Brisbane CBD include:
Leasing activity in the Brisbane CBD remained subdued in Q1 2025, mirroring the softer start seen at the beginning of 2024. While this seasonal pattern is typical, the slowdown this year has been more pronounced than previous years, with tenants increasingly opting to renew existing leases rather than relocate due to cost sensitivities and lack of available options.
Compared to early 2024, decision-making timelines have lengthened, particularly for larger occupiers. This comes amid shifting political and economic conditions in the wake of recent elections.
Despite this, government and professional services sectors continue to support baseline demand. Demand for Premium and A-Grade office space has dropped, with 3,151 sqm and 8,418 sqm respectively added back to the market, mostly due to a rise in sublease space in top-tier buildings.
Brisbane’s CBD is buzzing again, thanks to new policies bringing workers back into the city. The Queensland governments 50-cent public transport fare has made commuting cheaper, driving an 18.3% jump in public transport use.
At the same time, office return mandates are reshaping the workweek, with many companies pushing for three days in-office including NAB, Woolworths, and ANZ. This has pushed in-office attendance up from 78% to 88% over the past year.
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. These markets offer tenants cost-effective space, strong incentives, and growing amenity access, making them smart alternatives to core CBD locations.
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) and the 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) is scheduled for completion (due 2028). Several other projects have also been mooted, including:
The rising construction costs and Queensland’s ongoing trades shortage are significantly inhibiting new office developments, making it increasingly difficult for investors to justify large-scale projects.
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, prioritising refurbishments over new builds to mitigate financial risks.
The competition for talent and push for employees to return to the office are driving Brisbane’s ongoing flight to quality, with businesses increasingly prioritising location, efficient floorplates, high-end fitouts, 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 in Brisbane CBD.
Brisbane is seeing rising demand for buildings with strong ESG credentials that align with broader corporate sustainability goals. This shift is creating opportunities for tenants to secure high-quality space in well-located assets, as landlords of secondary stock increasingly invest in upgrades and offer competitive leasing terms to attract ESG-conscious occupiers.
The education sector is undergoing significant shifts due to national government initiatives that cap student numbers and restrict entry for foreign students. Decision-makers are holding off on major moves until the Senate reaches a verdict on the cap legislation. This has dampened demand in the sector, with the only notable education-related requirement in Q3 2024 where Omni Academies were seeking 1,000 sqm in the city fringe.
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.
Sydney’s office market is facing a significant shift, with the overall vacancy rate sitting at 12.8% as of January 2025, the highest level recorded in 28 years. This sharp increase has been driven primarily by a surge in new supply, with 164,552 sqm of office space delivered over the past six months, more than double the historical average of 74,361 sqm.
A Grade Buildings are currently experiencing the highest vacancy rate at 15.2%, followed by B Grade at 12.9% and Premium at 10.9%. While A Grade stock saw a supply boost in the second half of 2024, demand failed to keep pace, resulting in a net absorption of -59,355 sqm. This indicates that more space was vacated than was leased. B Grade also recorded negative net absorption of -17,671 sqm. In contrast, Premium space has remained more resilient, posting a strong positive net absorption of 125,182 sqm. This indicates ongoing demand for high-quality office offerings despite broader market softness.
Midtown, Southern, and the Western Corridor, are facing the highest average vacancy rates, between 14% and 15%, pointing to weaker demand for these areas. The Core precinct, on the other hand, shows a more balanced performance with an average vacancy of 11.3%, driven by a stronger uptake of Premium assets, while Walsh Bay and The Rocks report even lower vacancy rates of 7.8% and 9.1% respectively.
Around 75,450 sqm of new and refurbished space is forecast to come online this year, including:
Between 2025 and 2027, another 252,444 sqm of new office space is set to be added in the Sydney CBD, including the Atlassian HQ (75,000 sqm, 100% pre-committed), and 55 Pitt St and Chifley Tower South, which will deliver a combined 123,000 sqm.
The Sydney office market continues to demonstrate a clear flight to quality, seen with divergent performance across asset grades. For Premium, gross face and effective rents rose by 2.6% and 5.1% YoY respectively, showing resilience despite ongoing stock injections. A-Grade rents, on the other hand, softened, with face rents down 0.7% QoQ and effective rents declining 1.9% QoQ. This was primarily driven by a combination of weaker tenant demand (evidenced by net absorption of –59,355 sqm) and a significant influx of supply in H2 2024. B-Grade face rents have surged to 14.1%, but effective rents fell 1.0%, underscoring landlord’s use of incentives to preserve face rents amid subdued leasing activity.
Incentives varied by grade: Premium incentives fell 1.1% QoQ, reflecting stronger demand, while A and B-Grade incentives rose 0.4% and 2.1% respectively amid rising vacancy. This is creating attractive opportunities for tenants to secure better terms, despite growth in headline face rents.
Sydney’s sublease availability sits at 1.43% of total stock (75,910 sqm), with 92% concentrated in the city core. Average sublease size has dropped to 1,400 sqm, with banking, finance, education, and tech sectors accounting for 46,000 sqm. Notable tranches include:
With growing diversity and motivated landlords, sublease space offers tenants a chance to secure prime locations at competitive rates.
Demand remains elevated for high-quality space in the core, particularly upper floors of Premium buildings, driven by proximity to key amenities, public transport, and better views. In contrast, more cost-sensitive tenants are increasingly exploring peripheral markets such as the western corridor, southern, and midtown areas.
Occupier demand is primarily led by Financial Services (55%) and Legal & Accounting (6.5%).
Some of the recent notable commitments shaping the Sydney CBD market include:
As noted in our 2024 Wrap Up, recent data shows a steady return of office workers to the CBD, with attendance in some cities nearing pre-pandemic levels. In August 2024, the NSW government mandated public sector employees work in-office at least three days per week to optimise space use and productivity. Since then, major companies like Woolworths and Amazon have also implemented stricter mandates, with some requiring their staff to come in five days a week, mirroring broader national and global trends.
Sydney’s office attendance has risen from 72% to 76%, with Tuesdays peaking at 87% of pre-pandemic levels. This uptick may prompt businesses, particularly those that downsized during the pandemic, to reassess whether their current space is meeting their evolving needs.
However, Tenant CS Director Hamish Mackay notes:
"It's a mixed bag. While there's been a fairly public push in the media from organisations around returning to the office, the reality is that a hybrid model of working from home and in-office will coexist for at lease the next five years. Flexibility and lifestyle choices continue to drive staff preferences, which will influence tenant decisions and contribute to more sublease and under-utilised office space."
With hybrid work likely here to stay, long-term space planning will remain complex. Tenants should proactively review their space strategies and work with a tenant rep to remain competitive in a changing market.
Clear differences are emerging across precincts, not just in availability, but in value. The City Core remains in strong demand, and tenants looking to secure space there should be prepared to pay top dollar. Incentives are tightening for premium-grade assets in these areas, as landlords grow more confident in attracting long-term commitments from quality tenants.
In contrast, submarkets like the Western Corridor are offering far more competitive leasing terms. According to Tenant CS Associate Director, Hannah Feltham:
"Vacancy in this precinct has hit 14%, pushing landlords to offer more aggressive deals to attract tenants. In some recent cases, tenants have secured full speculative fitouts and rental abatements of 25-30% on five-year leases, bringing total incentive packages closer to 50%."
The choice for occupiers is becoming clearer: securing a high-profile address in the Core will come at a premium. But for those prioritising value, flexibility, and turnkey space, alternative CBD precincts offer more attractive terms. In the current environment, aligning lease decisions with broader business goals and market conditions is critical.
Hannah Feltham also notes an uptick in lease renewals during the latter half of 2024 and into Q1 2025, particularly among tenants who originally secured spaces with speculative fitouts:
"More and more tenants are choosing to renew their leases, provided the existing fitout continues to suit their operational needs. By renewing, businesses can use their incentives as rental abatements, cutting their passing rent by about 35%. This makes it more affordable and flexible for tenants to manage costs without the upfront expense of new fitouts. Many companies are combining these 'stay-put' renewals with growth plans, expanding within their existing buildings by taking on extra floors or adjacent space instead of moving. This illustrates a growing trend of preserving the value of existing fitouts while efficiently scaling in a familiar space."
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 underscores this, highlighting a clear preference for premium, strategically located offices that offer both prestige and enhanced amenities.
In a recent Tenant CS study that tracked 75 mid- and top-tier law firms in Sydney, 39% had downsized, 60% upsized, and their average tenure in one building was 7.5 years (driven by high relocation and fitout costs). With such long commitments, engaging a tenant rep is crucial, not just to negotiate favourable terms, but to stay aligned with market trends and maximise long-term value.
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 future Atlassian HQ (due 2027) is a strong example of this trend, with the low carbon skyscraper set to pave the way towards more sustainable office towers. The low carbon goal will be achieved by using mass timber in place of concrete and steel. As attracting and maintaining talent is a core goal for tech companies, the building is expected to lure top talent by offering high-quality, environmentally friendly workspaces that align with employee values and corporate sustainability goals.
Melbourne CBD’s vacancy rate remains elevated at circa 18%. Premium and A-Grade vacancy both ticked higher in January, with Premium increasing from 16.1% to 16.8% and A Grade from 18% to 18.5%. B Grade, on the other hand, saw a 2.6% decline to 20.3%. The high vacancy is underpinned by slow tenant demand, despite modest new supply in 2024 (79,000 sqm).
Precinct-level divergence continues with Flagstaff recording the highest vacancy (27%), followed by Spencer (22%) and Docklands (20%). The Eastern Core remains the lowest vacancy despite an increase of by 3.0% to 13.8%, largely due to the relocation of Australia Post from 111 Bourke Street in H2 2024.
However, Tenant CS Director, Matthew Pollak, maintains that headline vacancy figures understate the real availability of office space. Factors like shadow vacancy, sublease space still in use, short-term lease expiries, and stock withdrawn under the guise of construction, mean that actual availability could be closer to 27%, equating to more than 1 million sqm across Melbourne’s CBD.
New completions in the Melbourne CBD remain limited, with no office deliveries in Q1 2025 and just 79,000 sqm added in 2024, well below the 180,000 sqm historical average.
Melbourne’s rising vacancy rate has kept incentives elevated this quarter. Y-o-Y, Premium, A and B-Grade incentives grew 7.8%, 5.6% and 5.6% respectively. Growth in incentives for Premium and A Grade can be attributed to:
Despite continued upward pressure on vacancy, face rents increased modestly across all grades this quarter, rising 0.4% for Premium, 0.6% for A Grade, and 0.2% for B-Grade.
However, elevated incentive levels have led to a decline in effective rents across the board. B-Grade assets saw the sharpest drop in effective rents, down 2.6% to $301, followed by A Grade at -0.5% to $370. Premium effective rents also declined by 0.9% to $454, despite growth in previous quarter.
The outlook for Melbourne remains tenant-friendly with persistent high vacancy and strong incentives supressing effective rental growth across all grades.
Sublease vacancy decreased across both CBD and non-CBD markets in 2024. Despite this recent drop off, Melbournian tenants still leverage the cost and flexibility benefits of subleasing the most. Data now reveals that sublease vacancy in Melbourne remains above the historical average, currently sitting at 1.6% (82,864 sqm), the highest of any Australian city.
As of H2 2024, the market recorded a trailing 6-month net absorption of -44,962 sqm, extending a broader trend of weakening demand. Good quality B Grade stock was the only segment to show signs of resilience, though this was driven by tenants relocating from fringe and suburban markets rather than organic demand growth.
At the precinct level, results were mixed. The Eastern Core recorded the largest contraction at -62,811 sqm, influenced by several large tenant moves. Flagstaff, Spencer, and Docklands also reported modest declines. However, this was partly balanced by strong take-up in the Civic and Western Core precincts, where more than 20,000 sqm was leased, highlighting ongoing demand for well-located, competitively priced space. Coupled with elevated vacancy and incentives, these conditions continue to favour tenants.
Some of the commitments which will shape the future of the Melbourne CBD include:
Recent relocations will result in a significant amount of backfill space, adding further pressure to vacancy rates.
While overall vacancy rates have seen a marginal decrease, there has been little change in the availability of quality leasing options. Interestingly, B-Grade was the only segment where more space was leased than vacated, with five out of seven precincts recording gains. Fringe tenants relocating to the CBD are likely behind the uplift, suggesting that, for some tenants, location is taking priority over quality, a trend that could build in 2025.
However, insights from our Tenant CS Director, Jared Kroeger, suggest a different reality:
"While headline figures indicate improvement, many B-Grade buildings throughout the CBD continue to experience high vacancy. These landlords will know they need to put their hands in their pockets to secure or retain good tenants, so that's where the opportunities lie."
Melbourne's CBD office vacancy rate remains the highest amongst Australia’s capital cities, 4.3% above the national average. This 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. In response to this, there’s 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 and public transport initiatives have been introduced, have shown government action to be effective in increasing occupancy levels and in-office attendance.
Melbourne’s office market has likely not yet bottomed out, with vacancy rates remaining at historically high levels and further challenges ahead. The outlook remains uncertain due to oversupply, downsizing, and weak tenant demand.
Fitted spaces continue to attract savvy 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 remain significantly low, with some projects expected to reach completion without pre-commitments due to strategic marketing or asset positioning decisions.
Upcoming stock set for completion between 2025-2027 totals c,174,000 sqm. Just 21% of this new space is pre-committed, including:
With much of a development’s funding tied to pre-commitments, the 'build it and they will come' approach is becoming increasingly risky. Office demand remains weak, vacancy rates are not expected to recover until 2032, and net absorption is being reported at -44,962 sqm, indicating that more office space is becoming vacant rather than leased. Coupled with rising construction costs, this has delayed several future projects, including, 85 Spring St, 17 Bennetts Ln, Stage 2 of 555 Collins St and 600 Collins St (now mooted).
In Melbourne, ESG ratings are gaining prominence, with tenants increasingly favouring buildings with high NABERS ratings and robust green initiatives. However, these buildings typically come at a higher grade, and cost.
With lower-grade offices seeing a modest increase in demand, and A-Grade buildings accounting for most of the space given back to the market in 2024, this suggests that for many Melbourne tenants, 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. In Q4 2024, two A-Grade assets changed hands with significant declines in value:
No Premium-Grade office towers have been sold to formally recognise the valuation losses many landlords have endured. Tenant CS’ Matthew Pollak explains, "Like Sydney, the premium buildings in Melbourne CBD’s core appear to be maintaining their book values, but only because they aren’t being sold, doing so would force landlords to realise 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, rising incentives and increase in vacancies, recovery is likely to be slow.
Brisbane CBD's overall vacancy is being reported at 10.2% as of January 2025. The increase in vacancy seen in H2 2024 was attributed to subdued tenant demand and negative net absorption of -12,646 sqm, indicating that more space has been vacated than leased. This comes because of slower decision-making from large corporates, a rise in lease renewals, and economic pressures, such as higher interest rates and wage costs, that are impacting smaller tenants.
No new completions occurred in Q1 2025, leaving total stock levels steady. However, looking ahead, new supply is set to come online later in the year, including:
The broader supply pipeline remains limited, with most future completions either already committed or part of government backfill strategies. Major developments such as Waterfront North Tower (due 2028) and mooted projects, including 101 Albert Street and 60 Queen Street, are unlikely to reach market before 2028, reinforcing medium-term scarcity of new prime stock.
Gross Face rents continued their upward trajectory in Q1 2025, with Premium rising to $1,194, A Grade to $916, and B Grade to $770. This represents a modest quarterly increase of 0.8% for Premium, 4.1% for A-Grade, and 3.2% for B-Grade.
Incentives have slightly shifted, with Premium and A-Grade decreasing to 34.5% and 37.5% respectively, while B-Grade saw the largest drop in incentives (down -1.5%). Coupled with the rise in face rents, these incentive adjustments, though small, have contributed to a further uplift in Effective Rents, with Premium increasing 1.5% Q-o-Q to $781, A-Grade spiking by 7.6% to $573, and B-Grade jumping up 5.6% to $465.
The sustained increase in face rents combined with steady or slightly declining incentives signals ongoing competition for quality space, particularly in higher-grade assets.
Sublease availability in Brisbane declined over the course of 2024 but rose to 0.7% of total stock (approximately 17,000 sqm) by January 2025. According to the Property Council of Australia, Brisbane and Melbourne were the only capital cities with sublease vacancy rates that exceed their historical averages. Notable sublease offerings in the second half of 2024 included:
For tenants seeking flexible arrangements with significant cost savings, now appears to be a good time to consider subleasing.
Some of the recent commitments shaping the Brisbane CBD include:
Leasing activity in the Brisbane CBD remained subdued in Q1 2025, mirroring the softer start seen at the beginning of 2024. While this seasonal pattern is typical, the slowdown this year has been more pronounced than previous years, with tenants increasingly opting to renew existing leases rather than relocate due to cost sensitivities and lack of available options.
Compared to early 2024, decision-making timelines have lengthened, particularly for larger occupiers. This comes amid shifting political and economic conditions in the wake of recent elections.
Despite this, government and professional services sectors continue to support baseline demand. Demand for Premium and A-Grade office space has dropped, with 3,151 sqm and 8,418 sqm respectively added back to the market, mostly due to a rise in sublease space in top-tier buildings.
Brisbane’s CBD is buzzing again, thanks to new policies bringing workers back into the city. The Queensland governments 50-cent public transport fare has made commuting cheaper, driving an 18.3% jump in public transport use.
At the same time, office return mandates are reshaping the workweek, with many companies pushing for three days in-office including NAB, Woolworths, and ANZ. This has pushed in-office attendance up from 78% to 88% over the past year.
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. These markets offer tenants cost-effective space, strong incentives, and growing amenity access, making them smart alternatives to core CBD locations.
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) and the 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) is scheduled for completion (due 2028). Several other projects have also been mooted, including:
The rising construction costs and Queensland’s ongoing trades shortage are significantly inhibiting new office developments, making it increasingly difficult for investors to justify large-scale projects.
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, prioritising refurbishments over new builds to mitigate financial risks.
The competition for talent and push for employees to return to the office are driving Brisbane’s ongoing flight to quality, with businesses increasingly prioritising location, efficient floorplates, high-end fitouts, 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 in Brisbane CBD.
Brisbane is seeing rising demand for buildings with strong ESG credentials that align with broader corporate sustainability goals. This shift is creating opportunities for tenants to secure high-quality space in well-located assets, as landlords of secondary stock increasingly invest in upgrades and offer competitive leasing terms to attract ESG-conscious occupiers.
The education sector is undergoing significant shifts due to national government initiatives that cap student numbers and restrict entry for foreign students. Decision-makers are holding off on major moves until the Senate reaches a verdict on the cap legislation. This has dampened demand in the sector, with the only notable education-related requirement in Q3 2024 where Omni Academies were seeking 1,000 sqm in the city fringe.
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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