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 overall vacancy rate sits at 13.8%as at January 2026, the highest level since the early 1990sand a clear sign that new supply is still running ahead of demand. The picture by grade is quite mixed. A Grade vacancy recently climbed to 17.6% (from 15.2%in January), and B Grade has moved up to 14.4% (from 12.9%), showing continued softness in secondary assets. In contrast, Premium vacancy has tightened to 8.9%(from 9.8%), reflecting tenants’ preference toward the top tier buildings despite broader softness.
Vacancy is also unfolding differently across the CBD. In the Core, Premium space is relatively tight at 8.8%, while A-Grade sits at 15.0% and B Grade at 15.8%. Outside the Core, including theWestern Corridor, Southern and Midtown precincts – vacancies are generally in the mid-teens, highlighting softer demand and more choice for tenants in these fringe CBD locations.
Around 101,300 sqm of stock came to market in 2025, the bulk of this being refurbished stock (93,964 sqm), including:
· 270 Pitt St (23,000 sqm) refurbishment
· 1 Kent St (5,300 sqm) refurbishment
· 33 Alfred Street (32,000 sqm,~65% pre-committed) refurbishment
· 121 Castlereagh Street (11,500 sqm, ~70% pre-committed) new development
· 1 Shelley Street (29,500 sqm reintroduced after refurbishment) refurbishment
The next substantial supply wave is not until 2027, when more than 170,000 sqm is scheduled at 55 Pitt Street (63,000 sqm, ~35% pre-committed), Atlassian HQ (57,000 sqm, 100% pre-committed) andChifley Tower South (53,000 sqm, ~50% pre-committed). Beyond this, the pipeline is expected to slow as higher construction costs and limited pre-leasing make new projects harder to commence.
Face rents continued to edge higher in Q42025, particularly at the top end. Premium increased 0.3% over the quarter to$1,803/sqm (+5.2% YoY), while A Grade rose a stronger 0.9% to $1,549/sqm (+4.2%YoY). B Grade also lifted slightly, up 0.3% to $1,245/sqm, with annual growth of 14.4% reflecting ongoing repricing of secondary stock rather than a broad tightening in conditions.
Effective rents showed a similar but more mixed pattern. Premium effective rents increased 0.6% to $1,162/sqm (+6.7%YoY), and A Grade rose 0.9% to $979/sqm (+2.0% YoY). In contrast, B Grade effective rents fell 0.7% over the quarter to $729/sqm, although still 3.1%higher year-on-year. Incentives were broadly stable to slightly tighter at the top end, with Premium down 0.2 percentage points to 35.5% and A Grade easing0.2 points to 36.8%. B Grade incentives increased to 41.4% (+0.5 points QoQ),reinforcing the two-speed nature of the market. For tenants, this means costs are continuing to firm in Premium and A Grade assets, while B Grade remains more negotiable, with landlords relying on higher incentives to maintain deal momentum.
Sublease availability in the Sydney CBD has continued to stabilise and is now sitting below historical averages. As of Q4 2025, sublease space accounts for 0.6% of total stock, indicating a further tightening from earlier in the year and a reduced pool of short-term options for tenants. Availability is still dominated by financial services, tech, and professional firms. Notable tranches include:
· 20 Windmill St – 7,355 sqm (Dentsu)
· 30 Windmill St – 3,686 sqm (SiteMinder)
· Darling Park Tower 3 – 5,971sqm (NTT Group)
· 255 Elizabeth Street – 5,388sqm (Navitas)
· 400 George St – 3,462 (CFS)
With growing diversity and motivated landlords, sublease space offers tenants a chance to secure prime locations at competitive rates.
High-quality space in the Sydney CBD Core is a clear preference for larger tenants seeking flagship space, where occupiers continue to prioritise location, amenity, and building quality. Non-core precincts are gaining traction as a viable alternative. Cost-conscious occupiers are increasingly drawn to the Western Corridor, Southern precinct, and Midtown, where elevated vacancy and softer rents are enabling more attractive deal terms.
Some of the recent notable commitments shaping the Sydney CBD market include:
· HWL Ebsworth – 5 Martin Pl (11,023 sqm)
· NSW Government – 252 Pitt St (4,400 sqm)
· CreativeCubes.Co – 347 Kent St (2,718 sqm)
· Snowy Hydro – 225 George St (1,856 sqm)
Australia’s tech sector continues to scale, with around 40,000 tech companies, more than 1 million jobs and tech spending projected to grow 8.7% YoY, outpacing the broader APAC region. Within Sydney, this growth is increasingly concentrating in Tech Central, anchored by Atlassian.
Central, Central Place and the Post House, which together will deliver over 200,000 sqm of new-generation office space targeted at technology and innovation tenants. Atlassian Central alone is a 39-storey, 59,100 sqm Premium tower designed as one of the world’s tallest hybrid-timber office buildings, with an electricity-generating façade, and a fully electric, targeting market-leading Green Star and NABERS Energy ratings. When complete, Atlassian is expected to offer around 21,000 sqm for sublease across four floors in three pods, creating a rare opportunity for other occupiers to access brand-new, ESG-led space within a flagship HQ building. The Sydney Start-up Hub’s relocation from York Street into the Tech Central precinct at Pitt Street will pull early-stage and scale-up businesses into the same neighbourhood as larger tech corporates, deepening the cluster effect around Central Station. For clients wanting a deeper dive on the numbers, pipeline and tenant mix in Tech Central, we can share our 2025 Tech Deck or you can reach out to our Director, Francois Rollin, for a more detailed discussion.
Size requirements are beginning to stabilise as hybrid workplace models mature and businesses become clearer on how they want people to use the office. Organisations are testing a range of approaches, from anchor days to activity-based and team-led models – but, importantly, most now have a better handle on typical attendance patterns and space needs than they did two or three years ago. This is consistent with what our team, including Associate Director Courtney Magro, is seeing in recent tenant projects, where requirements are being framed with greater confidence around long-term workplace intent rather than short-term experimentation.
The sharp space give-backs of the immediate post-Covid period have eased, and this is now showing up in the sublease market: availability has fallen back below the 10-year average, indicating fewer tenants are carrying large amounts of excess space. Against this backdrop of more right-sized footprints, elevated construction costs and the highest CBD vacancy in around three decades, fewer landlords are willing to deliver full whole-floor speculative fitouts. Instead, they are focusing on lighter refurbishments or smaller suite-style spec, with layouts and capex more closely aligned to increasingly specific, data-driven tenant briefs.
You may have seen the headlines: new office developments in Sydney CBD are drying up, with no new buildings expected in 2026 and only a few slated for 2027. Some are calling it a turning point suggesting that the market is tightening, and tenants should brace for rising rents and shrinking incentives. But is this really the end of tenant-friendly conditions in Sydney’s CBD? Not quite. While this trend may apply to premium-grade assets in the Core CBD, it’s only part of the picture. As François Rollin, Sydney Director, explains:
“Pre-commitments are falling short, especially for larger size requirements. Vacancy rates in Sydney CBD have reached their highest levels since the early 1990s for both A and B grade assets. And with AI reshaping workforce needs, there’s a layer of uncertainty around future office demand.”
Beyond the CBD, the story continues. Just minutes away via Metro, vacancy rates remain high in key suburban markets (23,7% in North Sydney, 30,5% in St Leonards, 17,7% in Chatswood and 18,9% in Macquarie Park) making it great alternatives for tenants looking for more cost-effective solutions.
Sydney’s legal district is gradually shifting 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 firms such as Lander & Rogers, Maddocks and Pinsent Masons. The movement reflects a broader trend of law firms seeking to upgrade their office space to strengthen corporate image, attract and retain talent, and support a return to in-office work. Recent relocations of Johnson Winter Slattery and Corrs to Quay Quarter Tower, and Gadens to Chifley Square, underline a clear preference for premium, well-located offices that combine prestige, amenity and transport connectivity.
A recent Tenant CS study of 75 mid- and top-tier law firms in Sydney found that around 39% had downsized, 60% had upsized, and the average tenure in a single building was approximately 7.5 years, driven by high relocation and fitout costs. For legal occupiers, these long commitments place a premium on getting building quality, flexibility and location right at the outset, as today’s decisions will frame workplace and brand outcomes over much of the next decade.
Sustainability is now a core filter for office occupiers, particularly larger corporates with formal decarbonisation targets. Tenant CS Director Hamish Mackay notes that for many local and offshore tenants, strong ESG credentials are treated as a baseline requirement, not a “nice to have”
Tenants are gravitating towards higher-grade assets with strong Green Star, NABERS and/or WELL ratings. At the same time, recent analysis indicates only around 28% of Australian office buildings are on track to meet major tenants’ climate needs, highlighting how limited the pool of genuinely future-proof assets still is. This is widening the gap between newly built or comprehensively refurbished towers and older, more carbon-intensive stock.
The future Atlassian HQ at Tech Central (due 2027) illustrates where demand is heading: a low-carbon, hybrid-timber, fully electric building targeting leading sustainability ratings. For tech and innovation-led occupiers, assets of this type align leasing decisions with climate commitments and employee expectations, while reducing exposure to future regulatory and carbon-cost risk.
Melbourne CBD vacancy has increased to 19.0% as at Q4 2025, up 1.1 percentage points QoQ, indicating a further loosening in market conditions. This rise reflects continued supply of available space through backfill, with tenant demand yet to materially absorb existing availability and the reintroduction of refurbished assets with elevated vacancy, including 111 Bourke Street and 800 Collins Street.
Vacancy has risen across most precincts, with western markets including Flagstaff, Spencer and Docklands remaining the most challenged. Notably, vacancy in the Eastern Core has lifted following the return of 111 Bourke St, which is expected to remain like this until EY relocates in H2 2026.
By grade, conditions remain bifurcated, with Premium vacancy tightening modestly to 15.8% and continuing to outperform A Grade and B Grade stock, where elevated vacancy persists due to greater exposure to backfill.
New supply is heavily concentrated in 2026, with three major developments scheduled 7 Spencer St, 51 Flinders St and 435 Bourke St, alongside the refurbishment of 720 Bourke St. Pre-commitment remains low at 34.4%, meaning a significant volume of speculative space will be delivered, sustaining elevated vacancy and competitive leasing conditions in the near term.
Beyond 2026, the development pipeline tapers due to feasibility constraints, with few new projects expected to proceed. As a result, vacancy in Melbourne is unlikely to have peaked, and with additional completions through 2026–2027, further upward pressure on vacancy is expected.
Melbourne CBD face rents continued to increase across all grades, while incentives remained elevated. Premium net face rents rose 3.6% QoQ to $950, A Grade increased 0.9% to $771/sqm, and B Grade lifted 1.8% to $617. The impact on effective rents remains more measured. Premium effective rents increased 3.3% QoQ to $504, A Grade rose 3.1% to $401, while B Grade was unchanged at $309, remaining flat year-on-year. Incentives continue to sit at elevated levels, with Premium increasing marginally to 47.0%, A Grade tightening slightly to 48.0%, and B Grade rising to 50.0%.
The longer-term trend remains consistent, despite recent quarterly face rent increases, elevated incentives are still moderating the uplift in effective rents. For tenants, leasing conditions remain favourable, particularly in A and B Grade stock where incentives remain near cyclical highs and landlords continue to offer competitive packages to secure commitment.
Melbourne CBD sublease vacancy remains elevated at approximately 1.2% of total stock (c.64,000 sqm), well above the long-term average of around 42,000 sqm. Availability is now more evenly distributed across precincts, with most recording sublease vacancy below 2%, although the North Eastern precinct continues to account for the highest concentration of space.
Melbourne continues to record the highest level of sublease availability of any Australian capital. Sublease space remains an attractive alternative to direct leasing, typically offering discounted effective rents, existing fitouts, and shorter lease terms. This continues to provide both cost savings and flexibility, particularly for occupiers seeking near-term solutions or project space.
Melbourne CBD demand strengthened modestly through H2 2025, with total net absorption turning positive. By grade, A Grade buildings led absorption (+42,532 sqm), followed by Premium (+7,471 sqm), reinforcing that flight-to-quality remains a key occupier driver. In contrast, B Grade (-11,955 sqm) and C Grade (-10,251 sqm) continued to record negative absorption, highlighting ongoing backfill challenges in secondary stock as tenants upgrade into higher-quality space.
At a precinct level, results were mixed. Docklands (+32,485 sqm) and the Eastern Core (+16,389 sqm) recorded the strongest positive absorption, while the North Eastern precinct (+12,243 sqm) also saw improved take-up. This was offset by continued weakness in the Western Core (-8,390 sqm), Flagstaff (-11,476 sqm), and Spencer (-14,539 sqm), where vacancy remains elevated and demand more limited.
Despite the return to positive absorption, overall demand remains below long-term averages. For tenants, elevated vacancy across secondary grades and underperforming precincts continues to provide leverage, with landlords competing on both incentives and flexibility to secure commitments.
Some of the commitments which will shape the future of the Melbourne CBD include:
Our observation of stronger B Grade take-up has been confirmed in H1 2025 with PCA’s biannual report released in August. Melbourne CBD recorded overall net absorption of +1,446 sqm, with Grade B contributing +15,031 sqm, the standout performer across all grades. This uplift reflects tenants relocating from suburban and fringe markets into more central locations, suggesting that for many occupiers, CBD positioning is taking precedence over building quality.
This contrasts with other capitals where the “flight to quality” has dominated. In Melbourne, Premium absorption was positive but more modest (+4,520 sqm), while A Grade contracted. The data indicates tenants are prioritising affordability and location over quality upgrades, softening the flight-to-quality narrative in this market.
From 1 January 2026, the Melbourne congestion levy on off-street parking will rise sharply, with Category 1 (CBD) increasing from $1,750 to $3,030 per bay per year and Category 2 (inner fringe) rising from $1,240 to $2,150 per bay per year – lifts of roughly 70%. The Category 2 levy area will also expand to include parts of Burnley, Cremorne, Richmond, Abbotsford, South Yarra, Windsor and Prahran, as well as sections along St Kilda Road, while the Queen Victoria Market area moves to the lower Category 2 rate.
The impact will be most pronounced for tenants with large parking allocations, where the levy is typically passed through via outgoings or licence fees and can materially increase total occupancy costs even if office rents remain steady. Several fringe and city-edge precincts that were previously relatively low-cost for parking will now carry a much higher levy. As a result, the congestion levy will become a more important factor for companies with high parking requirements when assessing which suburbs and buildings to target in the next lease cycle, sitting alongside rent, incentives, transport access and staff catchments in occupier decision-making.
Fitted space continues to be leased ahead of vacant space, but in the sub-300sqm market there is now a clearer hierarchy emerging. Well-designed, modern spec suites are being leased noticeably faster than older or more generic specs, as smaller tenants prioritise quality, convenience and avoiding upfront fitout spend. Older spec fitouts are still leasing, but typically require sharper incentives or some landlord contribution towards refresh works to compete with newer, better-presented options.
In Melbourne, ESG credentials remain an important consideration, with tenants continuing to prefer buildings that offer strong NABERS ratings and sustainability initiatives. However, these buildings typically sit in the Premium and A Grade market, where demand has weakened. A Grade recorded the largest contraction in H1 2025, while B Grade was the only segment to show meaningful positive absorption. This pattern highlights that for many occupiers, affordability and location are outweighing ESG aspirations. Cost-conscious tenants are gravitating toward B Grade stock, even as premium assets hold their environmental advantage. With face and effective rents in secondary stock under pressure, cost remains the dominant driver of leasing decisions, while ESG is increasingly seen as a “nice to have” rather than a “must have”.
Brisbane CBD vacancy increased to 11.8% in Q4 2025, up from 10.7% in Q3, reflecting the impact of new supply and associated backfill. Premium vacancy rose materially to 8.2%, while A Grade increased to 10.7% and B Grade remained elevated at 14.9%, reinforcing the ongoing divergence between tightening prime conditions and structurally higher vacancy in secondary stock.
The rise in vacancy is largely attributable to the completion of 360 Queen Street (c.45,000 sqm) in Q4 2025. While the asset was c.90% pre-committed, the relocation of tenants has created backfill space across the CBD. Looking forward, the supply pipeline is highly constrained. Beyond recent completions (including 205 North Quay and 360 Queen St), only limited projects are committed:
Other flagged developments (e.g. 101 Albert St, 60 Queen St) remain uncommitted and are unlikely to deliver before 2028.
Implications for occupiers:
Gross face rents increased again in Q4 2025, with Premium rising to $1,288/sqm, A Grade to $1,016/sqm, and B Grade to $823/sqm. Growth was strongest in A Grade (5.0% QoQ), followed by Premium (2.5%) and B Grade (2.5%). On an annual basis, rents have lifted between 9–16%, reflecting continued upward pressure despite uneven leasing demand.
Incentives were broadly stable to lower across most grades, now sitting at 33.0% in Premium, 33.5% in A Grade, and 37.5% in B Grade. The modest compression continues to be concentrated in A and B Grade, while Premium remains unchanged, reflecting tight underlying availability at the top end of the market.
These movements pushed effective rents higher again this quarter. Premium rose 5.3% QoQ, A Grade lifted 6.6%, and B Grade increased 4.2%. The strongest momentum remains in A Grade, where declining incentives are amplifying rental growth despite rising vacancy. B Grade continues to offer the most favourable leasing conditions for tenants, with incentives still elevated and providing a buffer against face rental growth.
Sublease availability in the Brisbane CBD has tightened further to 0.7% of total stock (~16,676 sqm), down from 0.9% in mid-2025. The majority of sublease space is concentrated within A Grade assets, including 123 Albert Street, 12 Creek Street and 275 George Street.
This level sits below the long-term average of approximately 22,000 sqm, reinforcing the limited availability of secondary space across the market.
The decline has been driven by a combination of withdrawn listings, conversion of sublease space back to direct vacancy, and ongoing absorption, rather than any broad-based contraction in occupier demand. As a result, sublease remains a small component of overall supply, indicating that most occupiers are maintaining or modestly increasing their footprint rather than downsizing.
Leasing activity in the Brisbane CBD remained subdued through much of 2025, with many occupiers continuing to favour renewals over relocations amid cost pressures and ongoing caution. Decision-making timelines remain extended, particularly for larger corporates, contributing to a slower flow of new commitments.
Despite this softer backdrop, Brisbane recorded strong net absorption across the year, driven by a handful of large occupier moves rather than broad-based demand. This activity was concentrated in Premium assets, underpinning pre-commitment levels in new developments.
While vacancy has increased in the short term due to backfill from new supply, underlying demand remains stable, with most occupiers holding or modestly expanding their footprint rather than contracting.
Notable tenant movements in Q4 2025 shaping Brisbane CBD include:
Brisbane now ranks as the most expensive city to build in Australia, with average construction costs hitting approximately $5,009 psqm, edging ahead of Sydney and Melbourne. Pressure is mounting: Arcadis reports a 5.2% cost escalation in 2024, with a further 5% projected for 2025, and a staggering 30.5% cumulative cost rise expected by 2029, driven by Olympic-related demand, acute labour shortages, and wage inflation. The labour market is stretched estimates suggest a shortfall of 41,000 skilled workers across Queensland, exacerbating delays and escalating budgets.
At the same time, government infrastructure programs (notably 2032 Games preparations and Cross River Rail) are siphoning off capacity and labour from commercial projects, further squeezing new office developments. Adding to these pressures is poor labour productivity on major projects. Industry leaders warn that union-backed rostering is leaving some sites effectively operating at only two to three productive days per week, even as wages climb. Treasury modelling suggests this could lift project costs by up to 25% by 2030, highlighting systemic inefficiencies that make new office towers harder and slower to deliver. These conditions are a double-edged sword, on one hand, the difficulty and cost of delivering new high-quality towers gives landlords reason to hold firm on pre-commitment pricing and tighten incentives. On the other, there’s growing opportunity in existing A and B Grade buildings, where owners are investing in sustainability and productivity upgrades to remain competitive and leveraging incentives to attract occupiers.
Brisbane’s flight-to-quality continues to accelerate as organisations compete for talent and reinforce in-office attendance. With only eight Premium buildings in the entire CBD, high-quality space is structurally scarce, and demand is concentrating heavily at the top end of the market. In Q2 2025, Premium vacancy fell sharply from 7.3% to just 3.8%, its lowest level in more than four years, underscoring how quickly new or refurbished space is absorbed once it becomes available. By contrast, vacancy increased in A Grade (to 9.6%) and B Grade (to 14.9%) as occupiers either traded up or sought better amenity without paying Premium rents. The divergence shows that while overall CBD vacancy edged up to 10.7%, genuine high-quality options are shrinking. For tenants targeting Premium towers, early engagement is becoming essential. Those prepared to consider upgraded A or B Grade assets will benefit from broader choice, stronger incentives, and materially better negotiating leverage.
New CBD towers are thin on the ground over the next few years, with only a small number of committed projects adding to the total office pool and much of that space already pre-leased. From here, most leasing options will come from churn and backfill as tenants move into new or refurbished buildings, rather than from large volumes of brand-new stock. At the same time, some older secondary assets are being withdrawn or converted to other uses, meaning the market is gradually reshaping more than expanding. For tenants, the practical outcome is a market where the best value is increasingly found in existing A and better B Grade buildings, particularly refurbished or partially upgraded assets - offering a mix of established locations, improved services and negotiable commercial terms.
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. According to the PCA, the fringe recorded a 10.5% vacancy, which has been on the decline for a number of years.
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.
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.
Author
.png)
Share this article
Follow us
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 overall vacancy rate sits at 13.8%as at January 2026, the highest level since the early 1990sand a clear sign that new supply is still running ahead of demand. The picture by grade is quite mixed. A Grade vacancy recently climbed to 17.6% (from 15.2%in January), and B Grade has moved up to 14.4% (from 12.9%), showing continued softness in secondary assets. In contrast, Premium vacancy has tightened to 8.9%(from 9.8%), reflecting tenants’ preference toward the top tier buildings despite broader softness.
Vacancy is also unfolding differently across the CBD. In the Core, Premium space is relatively tight at 8.8%, while A-Grade sits at 15.0% and B Grade at 15.8%. Outside the Core, including theWestern Corridor, Southern and Midtown precincts – vacancies are generally in the mid-teens, highlighting softer demand and more choice for tenants in these fringe CBD locations.
Around 101,300 sqm of stock came to market in 2025, the bulk of this being refurbished stock (93,964 sqm), including:
· 270 Pitt St (23,000 sqm) refurbishment
· 1 Kent St (5,300 sqm) refurbishment
· 33 Alfred Street (32,000 sqm,~65% pre-committed) refurbishment
· 121 Castlereagh Street (11,500 sqm, ~70% pre-committed) new development
· 1 Shelley Street (29,500 sqm reintroduced after refurbishment) refurbishment
The next substantial supply wave is not until 2027, when more than 170,000 sqm is scheduled at 55 Pitt Street (63,000 sqm, ~35% pre-committed), Atlassian HQ (57,000 sqm, 100% pre-committed) andChifley Tower South (53,000 sqm, ~50% pre-committed). Beyond this, the pipeline is expected to slow as higher construction costs and limited pre-leasing make new projects harder to commence.
Face rents continued to edge higher in Q42025, particularly at the top end. Premium increased 0.3% over the quarter to$1,803/sqm (+5.2% YoY), while A Grade rose a stronger 0.9% to $1,549/sqm (+4.2%YoY). B Grade also lifted slightly, up 0.3% to $1,245/sqm, with annual growth of 14.4% reflecting ongoing repricing of secondary stock rather than a broad tightening in conditions.
Effective rents showed a similar but more mixed pattern. Premium effective rents increased 0.6% to $1,162/sqm (+6.7%YoY), and A Grade rose 0.9% to $979/sqm (+2.0% YoY). In contrast, B Grade effective rents fell 0.7% over the quarter to $729/sqm, although still 3.1%higher year-on-year. Incentives were broadly stable to slightly tighter at the top end, with Premium down 0.2 percentage points to 35.5% and A Grade easing0.2 points to 36.8%. B Grade incentives increased to 41.4% (+0.5 points QoQ),reinforcing the two-speed nature of the market. For tenants, this means costs are continuing to firm in Premium and A Grade assets, while B Grade remains more negotiable, with landlords relying on higher incentives to maintain deal momentum.
Sublease availability in the Sydney CBD has continued to stabilise and is now sitting below historical averages. As of Q4 2025, sublease space accounts for 0.6% of total stock, indicating a further tightening from earlier in the year and a reduced pool of short-term options for tenants. Availability is still dominated by financial services, tech, and professional firms. Notable tranches include:
· 20 Windmill St – 7,355 sqm (Dentsu)
· 30 Windmill St – 3,686 sqm (SiteMinder)
· Darling Park Tower 3 – 5,971sqm (NTT Group)
· 255 Elizabeth Street – 5,388sqm (Navitas)
· 400 George St – 3,462 (CFS)
With growing diversity and motivated landlords, sublease space offers tenants a chance to secure prime locations at competitive rates.
High-quality space in the Sydney CBD Core is a clear preference for larger tenants seeking flagship space, where occupiers continue to prioritise location, amenity, and building quality. Non-core precincts are gaining traction as a viable alternative. Cost-conscious occupiers are increasingly drawn to the Western Corridor, Southern precinct, and Midtown, where elevated vacancy and softer rents are enabling more attractive deal terms.
Some of the recent notable commitments shaping the Sydney CBD market include:
· HWL Ebsworth – 5 Martin Pl (11,023 sqm)
· NSW Government – 252 Pitt St (4,400 sqm)
· CreativeCubes.Co – 347 Kent St (2,718 sqm)
· Snowy Hydro – 225 George St (1,856 sqm)
Australia’s tech sector continues to scale, with around 40,000 tech companies, more than 1 million jobs and tech spending projected to grow 8.7% YoY, outpacing the broader APAC region. Within Sydney, this growth is increasingly concentrating in Tech Central, anchored by Atlassian.
Central, Central Place and the Post House, which together will deliver over 200,000 sqm of new-generation office space targeted at technology and innovation tenants. Atlassian Central alone is a 39-storey, 59,100 sqm Premium tower designed as one of the world’s tallest hybrid-timber office buildings, with an electricity-generating façade, and a fully electric, targeting market-leading Green Star and NABERS Energy ratings. When complete, Atlassian is expected to offer around 21,000 sqm for sublease across four floors in three pods, creating a rare opportunity for other occupiers to access brand-new, ESG-led space within a flagship HQ building. The Sydney Start-up Hub’s relocation from York Street into the Tech Central precinct at Pitt Street will pull early-stage and scale-up businesses into the same neighbourhood as larger tech corporates, deepening the cluster effect around Central Station. For clients wanting a deeper dive on the numbers, pipeline and tenant mix in Tech Central, we can share our 2025 Tech Deck or you can reach out to our Director, Francois Rollin, for a more detailed discussion.
Size requirements are beginning to stabilise as hybrid workplace models mature and businesses become clearer on how they want people to use the office. Organisations are testing a range of approaches, from anchor days to activity-based and team-led models – but, importantly, most now have a better handle on typical attendance patterns and space needs than they did two or three years ago. This is consistent with what our team, including Associate Director Courtney Magro, is seeing in recent tenant projects, where requirements are being framed with greater confidence around long-term workplace intent rather than short-term experimentation.
The sharp space give-backs of the immediate post-Covid period have eased, and this is now showing up in the sublease market: availability has fallen back below the 10-year average, indicating fewer tenants are carrying large amounts of excess space. Against this backdrop of more right-sized footprints, elevated construction costs and the highest CBD vacancy in around three decades, fewer landlords are willing to deliver full whole-floor speculative fitouts. Instead, they are focusing on lighter refurbishments or smaller suite-style spec, with layouts and capex more closely aligned to increasingly specific, data-driven tenant briefs.
You may have seen the headlines: new office developments in Sydney CBD are drying up, with no new buildings expected in 2026 and only a few slated for 2027. Some are calling it a turning point suggesting that the market is tightening, and tenants should brace for rising rents and shrinking incentives. But is this really the end of tenant-friendly conditions in Sydney’s CBD? Not quite. While this trend may apply to premium-grade assets in the Core CBD, it’s only part of the picture. As François Rollin, Sydney Director, explains:
“Pre-commitments are falling short, especially for larger size requirements. Vacancy rates in Sydney CBD have reached their highest levels since the early 1990s for both A and B grade assets. And with AI reshaping workforce needs, there’s a layer of uncertainty around future office demand.”
Beyond the CBD, the story continues. Just minutes away via Metro, vacancy rates remain high in key suburban markets (23,7% in North Sydney, 30,5% in St Leonards, 17,7% in Chatswood and 18,9% in Macquarie Park) making it great alternatives for tenants looking for more cost-effective solutions.
Sydney’s legal district is gradually shifting 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 firms such as Lander & Rogers, Maddocks and Pinsent Masons. The movement reflects a broader trend of law firms seeking to upgrade their office space to strengthen corporate image, attract and retain talent, and support a return to in-office work. Recent relocations of Johnson Winter Slattery and Corrs to Quay Quarter Tower, and Gadens to Chifley Square, underline a clear preference for premium, well-located offices that combine prestige, amenity and transport connectivity.
A recent Tenant CS study of 75 mid- and top-tier law firms in Sydney found that around 39% had downsized, 60% had upsized, and the average tenure in a single building was approximately 7.5 years, driven by high relocation and fitout costs. For legal occupiers, these long commitments place a premium on getting building quality, flexibility and location right at the outset, as today’s decisions will frame workplace and brand outcomes over much of the next decade.
Sustainability is now a core filter for office occupiers, particularly larger corporates with formal decarbonisation targets. Tenant CS Director Hamish Mackay notes that for many local and offshore tenants, strong ESG credentials are treated as a baseline requirement, not a “nice to have”
Tenants are gravitating towards higher-grade assets with strong Green Star, NABERS and/or WELL ratings. At the same time, recent analysis indicates only around 28% of Australian office buildings are on track to meet major tenants’ climate needs, highlighting how limited the pool of genuinely future-proof assets still is. This is widening the gap between newly built or comprehensively refurbished towers and older, more carbon-intensive stock.
The future Atlassian HQ at Tech Central (due 2027) illustrates where demand is heading: a low-carbon, hybrid-timber, fully electric building targeting leading sustainability ratings. For tech and innovation-led occupiers, assets of this type align leasing decisions with climate commitments and employee expectations, while reducing exposure to future regulatory and carbon-cost risk.
Melbourne CBD vacancy has increased to 19.0% as at Q4 2025, up 1.1 percentage points QoQ, indicating a further loosening in market conditions. This rise reflects continued supply of available space through backfill, with tenant demand yet to materially absorb existing availability and the reintroduction of refurbished assets with elevated vacancy, including 111 Bourke Street and 800 Collins Street.
Vacancy has risen across most precincts, with western markets including Flagstaff, Spencer and Docklands remaining the most challenged. Notably, vacancy in the Eastern Core has lifted following the return of 111 Bourke St, which is expected to remain like this until EY relocates in H2 2026.
By grade, conditions remain bifurcated, with Premium vacancy tightening modestly to 15.8% and continuing to outperform A Grade and B Grade stock, where elevated vacancy persists due to greater exposure to backfill.
New supply is heavily concentrated in 2026, with three major developments scheduled 7 Spencer St, 51 Flinders St and 435 Bourke St, alongside the refurbishment of 720 Bourke St. Pre-commitment remains low at 34.4%, meaning a significant volume of speculative space will be delivered, sustaining elevated vacancy and competitive leasing conditions in the near term.
Beyond 2026, the development pipeline tapers due to feasibility constraints, with few new projects expected to proceed. As a result, vacancy in Melbourne is unlikely to have peaked, and with additional completions through 2026–2027, further upward pressure on vacancy is expected.
Melbourne CBD face rents continued to increase across all grades, while incentives remained elevated. Premium net face rents rose 3.6% QoQ to $950, A Grade increased 0.9% to $771/sqm, and B Grade lifted 1.8% to $617. The impact on effective rents remains more measured. Premium effective rents increased 3.3% QoQ to $504, A Grade rose 3.1% to $401, while B Grade was unchanged at $309, remaining flat year-on-year. Incentives continue to sit at elevated levels, with Premium increasing marginally to 47.0%, A Grade tightening slightly to 48.0%, and B Grade rising to 50.0%.
The longer-term trend remains consistent, despite recent quarterly face rent increases, elevated incentives are still moderating the uplift in effective rents. For tenants, leasing conditions remain favourable, particularly in A and B Grade stock where incentives remain near cyclical highs and landlords continue to offer competitive packages to secure commitment.
Melbourne CBD sublease vacancy remains elevated at approximately 1.2% of total stock (c.64,000 sqm), well above the long-term average of around 42,000 sqm. Availability is now more evenly distributed across precincts, with most recording sublease vacancy below 2%, although the North Eastern precinct continues to account for the highest concentration of space.
Melbourne continues to record the highest level of sublease availability of any Australian capital. Sublease space remains an attractive alternative to direct leasing, typically offering discounted effective rents, existing fitouts, and shorter lease terms. This continues to provide both cost savings and flexibility, particularly for occupiers seeking near-term solutions or project space.
Melbourne CBD demand strengthened modestly through H2 2025, with total net absorption turning positive. By grade, A Grade buildings led absorption (+42,532 sqm), followed by Premium (+7,471 sqm), reinforcing that flight-to-quality remains a key occupier driver. In contrast, B Grade (-11,955 sqm) and C Grade (-10,251 sqm) continued to record negative absorption, highlighting ongoing backfill challenges in secondary stock as tenants upgrade into higher-quality space.
At a precinct level, results were mixed. Docklands (+32,485 sqm) and the Eastern Core (+16,389 sqm) recorded the strongest positive absorption, while the North Eastern precinct (+12,243 sqm) also saw improved take-up. This was offset by continued weakness in the Western Core (-8,390 sqm), Flagstaff (-11,476 sqm), and Spencer (-14,539 sqm), where vacancy remains elevated and demand more limited.
Despite the return to positive absorption, overall demand remains below long-term averages. For tenants, elevated vacancy across secondary grades and underperforming precincts continues to provide leverage, with landlords competing on both incentives and flexibility to secure commitments.
Some of the commitments which will shape the future of the Melbourne CBD include:
Our observation of stronger B Grade take-up has been confirmed in H1 2025 with PCA’s biannual report released in August. Melbourne CBD recorded overall net absorption of +1,446 sqm, with Grade B contributing +15,031 sqm, the standout performer across all grades. This uplift reflects tenants relocating from suburban and fringe markets into more central locations, suggesting that for many occupiers, CBD positioning is taking precedence over building quality.
This contrasts with other capitals where the “flight to quality” has dominated. In Melbourne, Premium absorption was positive but more modest (+4,520 sqm), while A Grade contracted. The data indicates tenants are prioritising affordability and location over quality upgrades, softening the flight-to-quality narrative in this market.
From 1 January 2026, the Melbourne congestion levy on off-street parking will rise sharply, with Category 1 (CBD) increasing from $1,750 to $3,030 per bay per year and Category 2 (inner fringe) rising from $1,240 to $2,150 per bay per year – lifts of roughly 70%. The Category 2 levy area will also expand to include parts of Burnley, Cremorne, Richmond, Abbotsford, South Yarra, Windsor and Prahran, as well as sections along St Kilda Road, while the Queen Victoria Market area moves to the lower Category 2 rate.
The impact will be most pronounced for tenants with large parking allocations, where the levy is typically passed through via outgoings or licence fees and can materially increase total occupancy costs even if office rents remain steady. Several fringe and city-edge precincts that were previously relatively low-cost for parking will now carry a much higher levy. As a result, the congestion levy will become a more important factor for companies with high parking requirements when assessing which suburbs and buildings to target in the next lease cycle, sitting alongside rent, incentives, transport access and staff catchments in occupier decision-making.
Fitted space continues to be leased ahead of vacant space, but in the sub-300sqm market there is now a clearer hierarchy emerging. Well-designed, modern spec suites are being leased noticeably faster than older or more generic specs, as smaller tenants prioritise quality, convenience and avoiding upfront fitout spend. Older spec fitouts are still leasing, but typically require sharper incentives or some landlord contribution towards refresh works to compete with newer, better-presented options.
In Melbourne, ESG credentials remain an important consideration, with tenants continuing to prefer buildings that offer strong NABERS ratings and sustainability initiatives. However, these buildings typically sit in the Premium and A Grade market, where demand has weakened. A Grade recorded the largest contraction in H1 2025, while B Grade was the only segment to show meaningful positive absorption. This pattern highlights that for many occupiers, affordability and location are outweighing ESG aspirations. Cost-conscious tenants are gravitating toward B Grade stock, even as premium assets hold their environmental advantage. With face and effective rents in secondary stock under pressure, cost remains the dominant driver of leasing decisions, while ESG is increasingly seen as a “nice to have” rather than a “must have”.
Brisbane CBD vacancy increased to 11.8% in Q4 2025, up from 10.7% in Q3, reflecting the impact of new supply and associated backfill. Premium vacancy rose materially to 8.2%, while A Grade increased to 10.7% and B Grade remained elevated at 14.9%, reinforcing the ongoing divergence between tightening prime conditions and structurally higher vacancy in secondary stock.
The rise in vacancy is largely attributable to the completion of 360 Queen Street (c.45,000 sqm) in Q4 2025. While the asset was c.90% pre-committed, the relocation of tenants has created backfill space across the CBD. Looking forward, the supply pipeline is highly constrained. Beyond recent completions (including 205 North Quay and 360 Queen St), only limited projects are committed:
Other flagged developments (e.g. 101 Albert St, 60 Queen St) remain uncommitted and are unlikely to deliver before 2028.
Implications for occupiers:
Gross face rents increased again in Q4 2025, with Premium rising to $1,288/sqm, A Grade to $1,016/sqm, and B Grade to $823/sqm. Growth was strongest in A Grade (5.0% QoQ), followed by Premium (2.5%) and B Grade (2.5%). On an annual basis, rents have lifted between 9–16%, reflecting continued upward pressure despite uneven leasing demand.
Incentives were broadly stable to lower across most grades, now sitting at 33.0% in Premium, 33.5% in A Grade, and 37.5% in B Grade. The modest compression continues to be concentrated in A and B Grade, while Premium remains unchanged, reflecting tight underlying availability at the top end of the market.
These movements pushed effective rents higher again this quarter. Premium rose 5.3% QoQ, A Grade lifted 6.6%, and B Grade increased 4.2%. The strongest momentum remains in A Grade, where declining incentives are amplifying rental growth despite rising vacancy. B Grade continues to offer the most favourable leasing conditions for tenants, with incentives still elevated and providing a buffer against face rental growth.
Sublease availability in the Brisbane CBD has tightened further to 0.7% of total stock (~16,676 sqm), down from 0.9% in mid-2025. The majority of sublease space is concentrated within A Grade assets, including 123 Albert Street, 12 Creek Street and 275 George Street.
This level sits below the long-term average of approximately 22,000 sqm, reinforcing the limited availability of secondary space across the market.
The decline has been driven by a combination of withdrawn listings, conversion of sublease space back to direct vacancy, and ongoing absorption, rather than any broad-based contraction in occupier demand. As a result, sublease remains a small component of overall supply, indicating that most occupiers are maintaining or modestly increasing their footprint rather than downsizing.
Leasing activity in the Brisbane CBD remained subdued through much of 2025, with many occupiers continuing to favour renewals over relocations amid cost pressures and ongoing caution. Decision-making timelines remain extended, particularly for larger corporates, contributing to a slower flow of new commitments.
Despite this softer backdrop, Brisbane recorded strong net absorption across the year, driven by a handful of large occupier moves rather than broad-based demand. This activity was concentrated in Premium assets, underpinning pre-commitment levels in new developments.
While vacancy has increased in the short term due to backfill from new supply, underlying demand remains stable, with most occupiers holding or modestly expanding their footprint rather than contracting.
Notable tenant movements in Q4 2025 shaping Brisbane CBD include:
Brisbane now ranks as the most expensive city to build in Australia, with average construction costs hitting approximately $5,009 psqm, edging ahead of Sydney and Melbourne. Pressure is mounting: Arcadis reports a 5.2% cost escalation in 2024, with a further 5% projected for 2025, and a staggering 30.5% cumulative cost rise expected by 2029, driven by Olympic-related demand, acute labour shortages, and wage inflation. The labour market is stretched estimates suggest a shortfall of 41,000 skilled workers across Queensland, exacerbating delays and escalating budgets.
At the same time, government infrastructure programs (notably 2032 Games preparations and Cross River Rail) are siphoning off capacity and labour from commercial projects, further squeezing new office developments. Adding to these pressures is poor labour productivity on major projects. Industry leaders warn that union-backed rostering is leaving some sites effectively operating at only two to three productive days per week, even as wages climb. Treasury modelling suggests this could lift project costs by up to 25% by 2030, highlighting systemic inefficiencies that make new office towers harder and slower to deliver. These conditions are a double-edged sword, on one hand, the difficulty and cost of delivering new high-quality towers gives landlords reason to hold firm on pre-commitment pricing and tighten incentives. On the other, there’s growing opportunity in existing A and B Grade buildings, where owners are investing in sustainability and productivity upgrades to remain competitive and leveraging incentives to attract occupiers.
Brisbane’s flight-to-quality continues to accelerate as organisations compete for talent and reinforce in-office attendance. With only eight Premium buildings in the entire CBD, high-quality space is structurally scarce, and demand is concentrating heavily at the top end of the market. In Q2 2025, Premium vacancy fell sharply from 7.3% to just 3.8%, its lowest level in more than four years, underscoring how quickly new or refurbished space is absorbed once it becomes available. By contrast, vacancy increased in A Grade (to 9.6%) and B Grade (to 14.9%) as occupiers either traded up or sought better amenity without paying Premium rents. The divergence shows that while overall CBD vacancy edged up to 10.7%, genuine high-quality options are shrinking. For tenants targeting Premium towers, early engagement is becoming essential. Those prepared to consider upgraded A or B Grade assets will benefit from broader choice, stronger incentives, and materially better negotiating leverage.
New CBD towers are thin on the ground over the next few years, with only a small number of committed projects adding to the total office pool and much of that space already pre-leased. From here, most leasing options will come from churn and backfill as tenants move into new or refurbished buildings, rather than from large volumes of brand-new stock. At the same time, some older secondary assets are being withdrawn or converted to other uses, meaning the market is gradually reshaping more than expanding. For tenants, the practical outcome is a market where the best value is increasingly found in existing A and better B Grade buildings, particularly refurbished or partially upgraded assets - offering a mix of established locations, improved services and negotiable commercial terms.
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. According to the PCA, the fringe recorded a 10.5% vacancy, which has been on the decline for a number of years.
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.
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.
We acknowledge the Traditional Custodians of the lands on which we work. Our offices are located on the land of the Gadigal peoples of the Eora Nation and the Wurundjeri peoples of the Kulin Nation. We acknowledge their continued connection and contribution to land, water and community, and pay our respects to Elders past and present.
We’re proud to be an inclusive workplace, where diversity in all its forms are valued and every member of our team is encouraged to bring their whole self to work.
.gif)
