Looking Back at 2025: How Australia’s CBD Office Market Rebased

The Australian CBD office market in 2025 has shifted from sharp volatility to a more stabilising – though still challenged – phase.

Vacancy remains elevated and above pre-pandemic levels, but conditions are gradually normalising as hybrid work patterns bed down, tenants focus on better-quality space and developers pull back on new supply due to high construction and funding costs. National CBD vacancy rose from 14.7 per cent to around 15.2 per cent over the first half of 2025, with Hobart still the tightest market at about 3.6 per cent, Melbourne among the highest at roughly 17.9 per cent, and Sydney, Brisbane, Adelaide, Canberra and Darwin broadly in the low- to mid-teens (PCA, July 2025).

A clear bifurcation between prime and secondary stock continues. Tenants are upgrading to well-located, higher-quality buildings with strong ESG credentials, while older and fringe assets lag. Sydney and Melbourne still see solid enquiry for premium and A-grade CBD space, with Sydney supported by a “flight to centrality” and Melbourne’s eastern core materially outperforming precincts such as Flagstaff and Docklands. Brisbane’s CBD remains relatively tight at the prime end, with strong growth in prime net effective rents and compressing incentives, while the Gold Coast has softened modestly off a low vacancy base. Perth has evolved into a “flight to value” story, with occupiers targeting good-quality A-grade CBD assets amid limited new supply, contributing to a 13.8 per cent increase in the median sale rate to about $4,675 per square metre. Adelaide is showing early signs of recovery, with vacancy easing and modest rental and yield improvement, while smaller markets such as Darwin and Hobart highlight the impact of thin but stable demand, government and defence occupiers and very constrained stock.

On the capital side, the transactions in 2025 look more like a year of consolidation than outright dislocation. CBRE Research Office Figures Quarter 3, 2025 indicate that CBD supply over the next five years will be the lowest since the late 1990s as high construction costs and tighter funding conditions suppress new development. Quarter 3, 2025 transaction activity reached about $2.1 billion — up 42 per cent on the previous quarter — although year-to-date volumes remain roughly 20 per cent below the same period in 2024, signalling that capital is returning but on a highly selective basis. Average prime CBD yields tightened slightly by around three basis points in Quarter 3, 2025 to about 6.68%, marking the first sign of cap-rate compression since early 2022 and suggesting that the sharpest phase of repricing for higher-quality assets may be passing.

Looking ahead, the office sector is likely to remain uneven. Elevated vacancy, hybrid work and structural challenges for older, non-compliant buildings will continue to weigh on secondary and obsolete stock. However, the combination of limited new supply, stabilising yields, selective but improving investor appetite and persistent tenant preference for prime, energy-efficient, amenity-rich space leaves well-located CBD offices relatively well placed. While volatility has not disappeared, 2025 increasingly appears to be a year of gradual rebasing and differentiation between winners and losers, rather than the broad-based softening seen in earlier years.