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 rose to 13.7% as of July 2025, the highest level recorded since the early 1990s. This increase highlights the ongoing challenge of new supply outpacing demand. By grade, A Grade vacancy climbed to 17.6%, up from 15.2% in Q1, while B Grade increased to 14.4% from 12.9%. In contrast, Premium tightened to 9.8%, down from 10.9%, reflecting continued occupier preference for top-tier buildings despite broader softness.
Vacancy is also playing out differently across the city. In the Core, Premium space is tighter at 8.8%, while A Grade sits at 15.0% and B Grade at 15.8%. Outside the Core, in areas such as the Western Corridor, Southern and Midtown, vacancies are sitting in the mid-teens, showing softer demand in these locations.
Around 73,000 sqm of new and refurbished stock came available in H1 2025, including:
A further 28,300 sqm is expected in the second half of the year including the refurbishment of the 25-storey tower 270 Pitt St (23,000 sqm) and heritage-listed 1 Kent St (5,300 sqm) into a future A Grade building. Neither project has recorded any pre-commitments.
Looking ahead, the next significant wave of stock will not arrive until 2027, when over 170,000 sqm is scheduled for delivery, including 55 Pitt Street (63,000 sqm c.35% pre-committed), Atlassian HQ (57,000 sqm 100% pre-committed), and Chifley Tower South (53,000 sqm, c.50% pre-committed). Beyond this, the supply pipeline is expected to slow, due to elevated construction costs and limited pre-commitments.
Face rents were unchanged across all grades in Q2 2025, with Premium holding at $1,745/sqm, A Grade at $1,491/sqm, and B Grade at $1,306/sqm. While landlords have kept headline rents steady, effective rents showed only modest quarterly movement. Premium effective rents increased by 1.5% to $1,152 /sqm, A Grade lifted 1.1% to $953 /sqm, and B Grade rose 1.5% to $729 /sqm.
Incentives continued to move higher in the secondary grades. Premium incentives edged down slightly to 35.7%, reflecting relative resilience at the top end of the market. By contrast, A Grade incentives rose to 37.3% and B Grade reached 40.1%, both up from Q1. This highlights the extent to which landlords are relying on leasing incentives to preserve face rents, particularly in markets facing rising vacancy.
Sublease availability in the Sydney CBD has stabilised through the first half of 2025 and is now below the historical average. As of June, sublease space accounted for 0.8% of total stock, or 42,940 sqm. Availability is still dominated by financial services, tech, and professional firms. Notable subleases 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 Sydney CBD Core, particularly upper floors of Premium buildings, driven by proximity to public transport, key amenities, and city views. In contrast, more cost-sensitive occupiers are increasingly exploring peripheral markets such as the Western Corridor, Southern precinct, and Midtown.
Financial services (33%) and professional services (34%) are the two largest drivers of activity in 2025, together accounting for nearly 70% of total deal volumes. Overall demand is concentrated in the Core precinct, representing around 60% of leasing activity.
Some of the recent notable commitments shaping the Sydney CBD market include:
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 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.
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.
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 vacancy remains elevated but has dropped 0.1% to 17.9% in Q2 2025. Premium tightened to 16.4%, B Grade to 18.9%, while A Grade recorded an increase to 19.3%. At a precinct level, the Eastern Core (13.8%) and North Eastern (13.0%) remain the tightest, while Spencer (21.9%) and Flagstaff (20.6%) continue to show the highest vacancy and best tenant leverage.
No new completions were recorded in Q2. Looking ahead, key additions include:
Beyond 2026, the pipeline moderates, with 2027–2029 completions expected to average around 20,000 sqm per year, below the historic average, but still providing a steady flow of new space into the market. With vacancy already near record highs and further supply set to enter the market, Melbourne tenants can expect ample choice and continued negotiating power over the coming years.
In Q2 2025, Melbourne CBD face rents continued to edge higher across all grades, but effective rents remain under pressure as incentives increase.
The longer trend is clear, while landlords have pushed face rents higher in recent years, effective rents are still being eroded by high incentives. Since 2018, Premium effective rents have fallen from $495/sqm to $461/sqm, while B Grade effective rents have dropped from $320/sqm to $307/sqm, despite nominal face rent growth.
For tenants, this means conditions remain highly favourable. Elevated incentives and vacancy ensure strong negotiating power, particularly in the A and B grade assets where effective rents remain flat or falling.
Melbourne CBD sublease vacancy fell to 1.2% in Q2 2025, down from 1.6% a year earlier and now below the long-term average.
Despite the decline, Melbourne still records the highest sublease availability of any Australian capital. For tenants, subleasing remains attractive given its lower effective rents, fitted layouts, and shorter terms, offering cost and flexibility advantages over direct lease options.
Melbourne CBD recorded its first period of positive net absorption since 2022, standing at +1,446 sqm in H1 2025. Growth was led by Grade B and Premium, partly offset by continued weakness in A Grade. At a precinct level, the Eastern Core and Western Core outperformed, while Docklands and the North Eastern precinct recorded further negative absorption.
Although the headline shift into positive territory signals a marginal improvement, demand remains well below historical norms. Elevated vacancy and generous incentives ensure occupiers continue to hold strong negotiating power.
Some of the commitments which will shape the future of the Melbourne CBD include:
Melbourne's CBD office vacancy rate remains the highest amongst Australia’s capital cities, now 2.7% above the national average. This is less a result of improvement in Melbourne (vacancy edged down just –0.01% in H1 2025) and more a reflection of national vacancy rising from 14.7% to 15.2%.
Physical appearance in the office in Melbourne is notably lower than other cities. In response, there are calls for the VIC Government to encourage public servants to return to the office, as seen in Brisbane, Perth and Sydney where mandates and transport incentives have proven effective. Melbourne, however, has moved in the opposite direction, the State Government’s proposal to legislate WFH risks entrenching this behaviour further.
As we highlighted in our Q1 report, Melbourne’s office market has likely not yet bottomed out. With oversupply, downsizing, weaker tenant demand and a structurally different workforce, recovery here will be slower and more uneven than in other capitals. For now, Melbourne remains firmly a tenants’ market.
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.
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.
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 lifted to 10.7% in Q2 2025 (from 10.2% in Q1). Premium tightened sharply to 3.8% (from 7.3%), while A Grade vacancy rose to 9.6% (from 8.3%) and B Grade to 14.9% (from 13.2%). This split highlights the demand for premium space and the flight to quality in Brisbane.
On the supply side, 205 North Quay (55,000 sqm) has now completed, fully pre-committed by Services Australia. The next major delivery is 360 Queen Street (45,430 sqm), due late 2025 and ~66% pre-committed. Beyond this, upcoming projects include the 450 Queen Street refurbishment (17,500 sqm, scheduled for 2026) and The Waterfront Brisbane North Tower (72,000 sqm new development, due 2028, ~50% pre-committed). Other mooted projects such as QIC’s 101 Albert Street and Charter Hall’s 60 Queen Street are yet to commence and will not reach the market before 2028.
While Premium vacancy has tightened, availability across A and B Grade is rising. This is creating broader choice and stronger negotiating power for occupiers in the mid-tier, where landlords are under increasing pressure to compete on incentives and fit-out support.
Gross face rents continued to rise in Q2 2025, with Premium climbing to $1,211/sqm, A Grade to $937/sqm, and B Grade to $790/sqm. Face rental growth was strongest in the lower grades, with A and B Grade rents up 2.3% and 2.6% respectively, compared with a 1.4% lift in Premium.
Incentives moved lower in Premium and A Grade, now sitting at 34.0% and 35.5% respectively, while B Grade held at 39.5%. These shifts translated to further gains in effective rents, with Premium lifting 2.3% Q-o-Q, A Grade jumping 5.5% and B Grade increasing 2.8%. The sharpest movement came in A Grade, where falling incentives have driven effective rents materially higher, despite vacancy in A Grade rising to 9.6%, rents in this segment continue to push higher, the squeeze at the top end is spilling over, giving A Grade landlords confidence to hold firmer on incentives and push face rents higher. B Grade continues to offer the strongest leverage for tenants through elevated incentives.
Brisbane CBD sublease vacancy was recorded at 0.9% of total stock (~20,900 sqm) in July 2025, down from 1.2% (~27,800 sqm) in January. This places current sublease availability below the city’s long-term average of ~1.0%. Reductions of sublease vacancy can be attributed to the removal of listings, transfer of sublease to direct vacancies and uptake of the space.
Leasing activity in the Brisbane CBD remained subdued in Q2 2025, with many occupiers opting to renew rather than relocate amid cost pressures and ongoing caution. Decision-making timelines remain extended, particularly for larger corporates, contributing to a slow flow of new commitments.
Despite this softer backdrop, Brisbane recorded the strongest net absorption of any CBD in the first half of 2025, reflecting a handful of large occupier moves rather than broad-based demand. This strength was concentrated in Premium assets as we noted vacancy tightened to 3.8%
Notable tenant movements in Q2 2025 shaping Brisbane CBD include:
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:
Brisbane now ranks as the most expensive city to build in Australia, with average construction costs hitting approximately A$5,009/m², 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 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.
The competition for talent and push for employees to return to the office are driving Brisbane’s ongoing flight to quality, with businesses prioritising location, efficient floorplates, high-end fitouts, and premium amenities. In Q2 2025, Premium vacancy fell sharply from 7.3% to just 3.8%, its lowest level in more than four years. The tightening highlights how quickly high-quality space is being absorbed once it becomes available.
By contrast, vacancy rose in both A Grade (to 9.6%) and B Grade (to 14.9%), reflecting weaker demand for mid-tier and secondary assets. The divergence reinforces that while overall CBD vacancy edged higher to 10.7%, competition for Premium stock is intensifying, leaving fewer options at the top end of the market. Fore tenants targeting Premium towers, early engagement is becoming essential, while those prepared to consider A or B Grade will find broader choice and stronger negotiating leverage.
Brisbane is seeing rising demand for office space with strong ESG credentials that align with corporate sustainability goals. In Q2 2025, this was most visible in Premium towers, where vacancy tightened to 3.8% as occupiers gravitated to high-rated buildings with modern services and efficiency standards.
For tenants, this shift is creating opportunities beyond the top end. Landlords of A and B Grade buildings, now facing higher vacancy of 9.6% and 14.9%, are increasingly investing in refurbishments and sustainability upgrades to remain competitive. This gives ESG-conscious occupiers more scope to secure quality space in well-located assets at a discount to Premium, often with stronger incentives and landlord-funded fit-outs as part of the deal.
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 overall vacancy rate rose to 13.7% as of July 2025, the highest level recorded since the early 1990s. This increase highlights the ongoing challenge of new supply outpacing demand. By grade, A Grade vacancy climbed to 17.6%, up from 15.2% in Q1, while B Grade increased to 14.4% from 12.9%. In contrast, Premium tightened to 9.8%, down from 10.9%, reflecting continued occupier preference for top-tier buildings despite broader softness.
Vacancy is also playing out differently across the city. In the Core, Premium space is tighter at 8.8%, while A Grade sits at 15.0% and B Grade at 15.8%. Outside the Core, in areas such as the Western Corridor, Southern and Midtown, vacancies are sitting in the mid-teens, showing softer demand in these locations.
Around 73,000 sqm of new and refurbished stock came available in H1 2025, including:
A further 28,300 sqm is expected in the second half of the year including the refurbishment of the 25-storey tower 270 Pitt St (23,000 sqm) and heritage-listed 1 Kent St (5,300 sqm) into a future A Grade building. Neither project has recorded any pre-commitments.
Looking ahead, the next significant wave of stock will not arrive until 2027, when over 170,000 sqm is scheduled for delivery, including 55 Pitt Street (63,000 sqm c.35% pre-committed), Atlassian HQ (57,000 sqm 100% pre-committed), and Chifley Tower South (53,000 sqm, c.50% pre-committed). Beyond this, the supply pipeline is expected to slow, due to elevated construction costs and limited pre-commitments.
Face rents were unchanged across all grades in Q2 2025, with Premium holding at $1,745/sqm, A Grade at $1,491/sqm, and B Grade at $1,306/sqm. While landlords have kept headline rents steady, effective rents showed only modest quarterly movement. Premium effective rents increased by 1.5% to $1,152 /sqm, A Grade lifted 1.1% to $953 /sqm, and B Grade rose 1.5% to $729 /sqm.
Incentives continued to move higher in the secondary grades. Premium incentives edged down slightly to 35.7%, reflecting relative resilience at the top end of the market. By contrast, A Grade incentives rose to 37.3% and B Grade reached 40.1%, both up from Q1. This highlights the extent to which landlords are relying on leasing incentives to preserve face rents, particularly in markets facing rising vacancy.
Sublease availability in the Sydney CBD has stabilised through the first half of 2025 and is now below the historical average. As of June, sublease space accounted for 0.8% of total stock, or 42,940 sqm. Availability is still dominated by financial services, tech, and professional firms. Notable subleases 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 Sydney CBD Core, particularly upper floors of Premium buildings, driven by proximity to public transport, key amenities, and city views. In contrast, more cost-sensitive occupiers are increasingly exploring peripheral markets such as the Western Corridor, Southern precinct, and Midtown.
Financial services (33%) and professional services (34%) are the two largest drivers of activity in 2025, together accounting for nearly 70% of total deal volumes. Overall demand is concentrated in the Core precinct, representing around 60% of leasing activity.
Some of the recent notable commitments shaping the Sydney CBD market include:
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 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.
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.
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 vacancy remains elevated but has dropped 0.1% to 17.9% in Q2 2025. Premium tightened to 16.4%, B Grade to 18.9%, while A Grade recorded an increase to 19.3%. At a precinct level, the Eastern Core (13.8%) and North Eastern (13.0%) remain the tightest, while Spencer (21.9%) and Flagstaff (20.6%) continue to show the highest vacancy and best tenant leverage.
No new completions were recorded in Q2. Looking ahead, key additions include:
Beyond 2026, the pipeline moderates, with 2027–2029 completions expected to average around 20,000 sqm per year, below the historic average, but still providing a steady flow of new space into the market. With vacancy already near record highs and further supply set to enter the market, Melbourne tenants can expect ample choice and continued negotiating power over the coming years.
In Q2 2025, Melbourne CBD face rents continued to edge higher across all grades, but effective rents remain under pressure as incentives increase.
The longer trend is clear, while landlords have pushed face rents higher in recent years, effective rents are still being eroded by high incentives. Since 2018, Premium effective rents have fallen from $495/sqm to $461/sqm, while B Grade effective rents have dropped from $320/sqm to $307/sqm, despite nominal face rent growth.
For tenants, this means conditions remain highly favourable. Elevated incentives and vacancy ensure strong negotiating power, particularly in the A and B grade assets where effective rents remain flat or falling.
Melbourne CBD sublease vacancy fell to 1.2% in Q2 2025, down from 1.6% a year earlier and now below the long-term average.
Despite the decline, Melbourne still records the highest sublease availability of any Australian capital. For tenants, subleasing remains attractive given its lower effective rents, fitted layouts, and shorter terms, offering cost and flexibility advantages over direct lease options.
Melbourne CBD recorded its first period of positive net absorption since 2022, standing at +1,446 sqm in H1 2025. Growth was led by Grade B and Premium, partly offset by continued weakness in A Grade. At a precinct level, the Eastern Core and Western Core outperformed, while Docklands and the North Eastern precinct recorded further negative absorption.
Although the headline shift into positive territory signals a marginal improvement, demand remains well below historical norms. Elevated vacancy and generous incentives ensure occupiers continue to hold strong negotiating power.
Some of the commitments which will shape the future of the Melbourne CBD include:
Melbourne's CBD office vacancy rate remains the highest amongst Australia’s capital cities, now 2.7% above the national average. This is less a result of improvement in Melbourne (vacancy edged down just –0.01% in H1 2025) and more a reflection of national vacancy rising from 14.7% to 15.2%.
Physical appearance in the office in Melbourne is notably lower than other cities. In response, there are calls for the VIC Government to encourage public servants to return to the office, as seen in Brisbane, Perth and Sydney where mandates and transport incentives have proven effective. Melbourne, however, has moved in the opposite direction, the State Government’s proposal to legislate WFH risks entrenching this behaviour further.
As we highlighted in our Q1 report, Melbourne’s office market has likely not yet bottomed out. With oversupply, downsizing, weaker tenant demand and a structurally different workforce, recovery here will be slower and more uneven than in other capitals. For now, Melbourne remains firmly a tenants’ market.
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.
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.
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 lifted to 10.7% in Q2 2025 (from 10.2% in Q1). Premium tightened sharply to 3.8% (from 7.3%), while A Grade vacancy rose to 9.6% (from 8.3%) and B Grade to 14.9% (from 13.2%). This split highlights the demand for premium space and the flight to quality in Brisbane.
On the supply side, 205 North Quay (55,000 sqm) has now completed, fully pre-committed by Services Australia. The next major delivery is 360 Queen Street (45,430 sqm), due late 2025 and ~66% pre-committed. Beyond this, upcoming projects include the 450 Queen Street refurbishment (17,500 sqm, scheduled for 2026) and The Waterfront Brisbane North Tower (72,000 sqm new development, due 2028, ~50% pre-committed). Other mooted projects such as QIC’s 101 Albert Street and Charter Hall’s 60 Queen Street are yet to commence and will not reach the market before 2028.
While Premium vacancy has tightened, availability across A and B Grade is rising. This is creating broader choice and stronger negotiating power for occupiers in the mid-tier, where landlords are under increasing pressure to compete on incentives and fit-out support.
Gross face rents continued to rise in Q2 2025, with Premium climbing to $1,211/sqm, A Grade to $937/sqm, and B Grade to $790/sqm. Face rental growth was strongest in the lower grades, with A and B Grade rents up 2.3% and 2.6% respectively, compared with a 1.4% lift in Premium.
Incentives moved lower in Premium and A Grade, now sitting at 34.0% and 35.5% respectively, while B Grade held at 39.5%. These shifts translated to further gains in effective rents, with Premium lifting 2.3% Q-o-Q, A Grade jumping 5.5% and B Grade increasing 2.8%. The sharpest movement came in A Grade, where falling incentives have driven effective rents materially higher, despite vacancy in A Grade rising to 9.6%, rents in this segment continue to push higher, the squeeze at the top end is spilling over, giving A Grade landlords confidence to hold firmer on incentives and push face rents higher. B Grade continues to offer the strongest leverage for tenants through elevated incentives.
Brisbane CBD sublease vacancy was recorded at 0.9% of total stock (~20,900 sqm) in July 2025, down from 1.2% (~27,800 sqm) in January. This places current sublease availability below the city’s long-term average of ~1.0%. Reductions of sublease vacancy can be attributed to the removal of listings, transfer of sublease to direct vacancies and uptake of the space.
Leasing activity in the Brisbane CBD remained subdued in Q2 2025, with many occupiers opting to renew rather than relocate amid cost pressures and ongoing caution. Decision-making timelines remain extended, particularly for larger corporates, contributing to a slow flow of new commitments.
Despite this softer backdrop, Brisbane recorded the strongest net absorption of any CBD in the first half of 2025, reflecting a handful of large occupier moves rather than broad-based demand. This strength was concentrated in Premium assets as we noted vacancy tightened to 3.8%
Notable tenant movements in Q2 2025 shaping Brisbane CBD include:
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:
Brisbane now ranks as the most expensive city to build in Australia, with average construction costs hitting approximately A$5,009/m², 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 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.
The competition for talent and push for employees to return to the office are driving Brisbane’s ongoing flight to quality, with businesses prioritising location, efficient floorplates, high-end fitouts, and premium amenities. In Q2 2025, Premium vacancy fell sharply from 7.3% to just 3.8%, its lowest level in more than four years. The tightening highlights how quickly high-quality space is being absorbed once it becomes available.
By contrast, vacancy rose in both A Grade (to 9.6%) and B Grade (to 14.9%), reflecting weaker demand for mid-tier and secondary assets. The divergence reinforces that while overall CBD vacancy edged higher to 10.7%, competition for Premium stock is intensifying, leaving fewer options at the top end of the market. Fore tenants targeting Premium towers, early engagement is becoming essential, while those prepared to consider A or B Grade will find broader choice and stronger negotiating leverage.
Brisbane is seeing rising demand for office space with strong ESG credentials that align with corporate sustainability goals. In Q2 2025, this was most visible in Premium towers, where vacancy tightened to 3.8% as occupiers gravitated to high-rated buildings with modern services and efficiency standards.
For tenants, this shift is creating opportunities beyond the top end. Landlords of A and B Grade buildings, now facing higher vacancy of 9.6% and 14.9%, are increasingly investing in refurbishments and sustainability upgrades to remain competitive. This gives ESG-conscious occupiers more scope to secure quality space in well-located assets at a discount to Premium, often with stronger incentives and landlord-funded fit-outs as part of the deal.
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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