Today we attended the Property Council of Australia’s NSW Office Market Report mid-year event. Here’s what stood out and what it means for commercial tenants.

Sydney vacancy falls as demand remains positive

Sydney CBD vacancy decreased by 0.5 percentage points to 13.3%, supported by continued positive demand.

The CBD recorded 18,715 sqm of net absorption over the six months, remaining positive for the fourth consecutive reporting period. Only 5,724 sqm was withdrawn from the market, well below the historical average.

However, the headline vacancy figure does not reflect conditions across the entire market. Direct vacancy in Premium buildings is now below 8%, while considerably more space remains available in A-Grade (16%), B-Grade (15%) and non-CBD markets.

Premium Core incentives are beginning to compress

Incentives remain in the mid-30% range or higher across much of Sydney, but conditions are beginning to change in the Premium Core. Incentives have reduced to around 29% in recent Chifley North deals completed, with further compression expected over the coming years.

Face rents are also increasing faster than CPI. While incentives continue to offset some of these increases, net effective rent provides a clearer indication of the actual cost after incentives are applied.

Non-CBD markets continue to offer greater choice

Vacancy remains above 20% in North Sydney, Macquarie Park and Parramatta, despite limited new supply across parts of these markets.

These areas continue to provide tenants with greater choice and the potential for stronger commercial terms. However, elevated vacancy also reinforces the need to assess building quality, transport access, amenity and the landlord’s plans for the asset.

With Macquarie Park and North Shore markets likely to remain key areas for office-to-residential redevelopment, tenants should consider whether potential redevelopment plans could affect their occupancy or longer-term lease position.

AI is changing the workplace, not simply reducing it

AI was a major topic throughout the event. The panellists shared the view that AI is changing how people work, rather than simply reducing jobs and, in turn, office footprints. Businesses are reassessing how they use AI in the short-term and long-term, creating new roles and considering how their teams may work differently.

This shift is also generating new office demand. Anthropic, the company behind Claude, has recently established a Sydney presence and is reportedly seeking around 45 desks. It is likely to enter coworking space initially, joining a growing cluster of technology and AI businesses around Martin Place.

Research presented at the event found that remote work has had a greater impact on weaker graduate employment than generative AI. Separate findings also indicated that employees using AI achieved stronger improvements in work quality in in-office teams.

The emerging view is that AI may change the type of work people do and the spaces they need, rather than simply reducing office demand.

What does this mean for tenants?

Sydney remains a market of varied conditions. Premium Core availability is tightening, while higher vacancy in other areas continues to support tenant choice. Tenant interest has remained steady across markets such as the Western Corridor, while Midtown has experienced stronger enquiry and demand this year.

The key is to look beyond the headline vacancy rate. Conditions vary by grade and precinct, while AI and changing work patterns will continue to shape how businesses use their space. Office decisions should reflect each organisation’s needs, including cost, location, amenity, flexibility and how its teams work best.

Interested in what these trends mean for your business? Book a call with our team to discuss the market and explore your office leasing options.