National office vacancy rate hits 30-year high
With a deluge of new offices hitting the market and workers entrenched in their work from home arrangements, national vacancy rates continue to rise.
Office vacancy rates in Australia have hit a 30-year high as cities and non-CBD markets alike struggle to attract corporate tenants, lure people back to the white collar workplace and overcome a tide of new supply hitting the market.
The Australian CBD office vacancy rate crept up slightly from 13.7 to 14.3 per cent over the first six months of the year, to be at the highest level since the mid-1990s.
A continuing stream of new high-quality office supply is hitting the market, according to the Property Council of Australia, with more than 200,000sqm of supply added in the last six months, outstripping the positive levels of demand for office space.
Property Council Chief Executive Mike Zorbas said the slew of new office supply over the last few years is part of a refresh of office spaces in Australian cities as tenants demand higher quality spaces.
“The continuous supply of new high-quality office space in our CBDs is a response to businesses searching out great places for their employees to work in.
“Tenants are capitalising on opportunities to occupy premium buildings in prime CBD locations, with premium space continuing to see higher demand levels than lower-grade buildings.
“We have seen a year and a half of positive demand for office space, with more businesses taking up office space than leaving behind.
“Much of this demand is centred on Premium and A Grade buildings, with B, C and D grade office buildings experiencing negative demand over the last six months.”
Office buildings in Australia are graded in terms of quality, with Premium and A Grade considered ‘prime’, with B, C and D grades considered ‘secondary’ and of progressively lesser quality.
Vanessa Rader, Head of Research, Ray White Group, said office demand outside the CBD was taking the biggest hit.
“Australia’s non-CBD office markets are experiencing some of their most challenging periods on record, with several high-profile precincts recording vacancy rates that would have been unthinkable just a few years ago, though some regional markets continue to buck the trend.
“CBD market recovery is directly undermining suburban office demand, with even world-class transport infrastructure proving insufficient to compete against revitalised city locations offering competitive incentives and premium amenities.”
Ms Rader said the suburban office crisis reflects more than cyclical adjustment, arguing it represents structural transformation where CBD recovery is directly cannibalising suburban demand.
“Transport connectivity, once considered the primary driver of office demand, has proven insufficient when CBD locations offer superior amenities, corporate prestige, and competitive lease terms.
“Many suburban office markets now require exceptional fundamentals to compete against revitalised city alternatives.
“Queensland’s continued outperformance demonstrates that strong demographic growth, cost competitiveness, and business confidence can overcome CBD competition pressures, while markets lacking these advantages face potential obsolescence as businesses gravitate toward premium city locations regardless of suburban infrastructure credentials.”
Brisbane Fringe maintains healthy fundamentals with vacancy at just 10.5 per cent, a low unseen since 2013. Positive absorption has been a feature of this market, recording 15,963 sqm over the last year, while Gold Coast achieves one of Australia's tightest suburban office markets at 7.5 per cent vacancy despite negative absorption this period.
Workers need reason to return
The ‘work from home’ narrative has created a divide in the national office market, according to Work Inc founder Mark Davidson.
“While some are questioning the future of the CBD, we’re seeing a clear flight to quality where businesses, particularly small and nimble ones, are looking for workspaces that actively earn the commute,” he told API Magazine.
“Sydney, for example, appears to be recovering more quickly because its businesses are leading the charge in this flight to quality.
“In contrast, markets that were already struggling with older, less inspiring stock are finding it harder to attract people back.
“The key is no longer just being in the CBD; it’s about offering a compelling reason to be there,” Mr Davidson said.
Office vacancy by city
- Canberra rose from 9.2 to 10.7 per cent, due to large levels of supply outweighing the levels of positive demand.
- Brisbane rose from 10.2 to 10.7 per cent, as supply outstripped demand.
- Sydney rose from 12.8 to 13.7 per cent, this is due to high levels of supply outstripping demand.
- Adelaide fell from 16.4 to 15 per cent, thanks to positive demand and low supply.
- Perth rose from 15.1 to 17 per cent, which is due to large amounts of supply and negative net absorption.
- Melbourne fell from 18 to 17.9 per cent as demand and withdrawals outstripped the small amount of supply that came online.
The prospect of the office vacancy rate improving significantly appears slim in the short term, although some commentators have tipped a wider and gradual commercial property turnaround in 2026.
Over the next six months, 131,697sqm of supply is expected to go live in Australia’s CBDs. This is spread out across Adelaide (23,170sqm), Canberra (16,000sqm), Melbourne (66,127sqm) and Sydney (26,400sqm).
