Australia’s Office Market Recovery
The national office market continues to undergo a period of recovery, characterised by persistently high vacancy rates and elevated incentives across most of the country. While most CBDs are experiencing increased demand, this uptake appears to be slow and gradual.
Among the capital cities, Brisbane was the notable performer in overall market performance in 2025, demonstrating robust demand and growth. Brisbane’s longer-term outlook remains positive. Population growth, infrastructure investment and the lead-up to the Brisbane 2032 Olympics continue to underpin Brisbane’s medium-term office market outlook.
Sydney has also exhibited slightly better than anticipated performance, with some renewed market activity and early signs of improvement. Conversely, Melbourne and the remaining capital cities have not experienced a similar resurgence and remain subdued.
Recently released data from the Property Council of Australia indicates that vacancy rates across the major CBDs have sustained their upward trajectory, albeit at a reduced pace compared to the preceding few years.
The total national CBD office vacancy rate in January 2026 was reported at 14.8 per cent, a marginal increase from 14.3 per cent in July 2025. This represents a substantial rise from the pre-pandemic vacancy rate of eight per cent reported by the Property Council of Australia in January 2020.
In the six months ending January 2026, Sydney observed almost no change in vacancy from 13.7 per cent to 13.8 per cent, Melbourne’s rate rose to 19 per cent, and Brisbane recorded an increase from 10.7 to 11.8 per cent. Hobart, Darwin and Adelaide also reported increases, while Canberra reported a decrease and Perth remained steady at 16.9 per cent.
The preference for premium and A-grade office space persists, with most agents reporting stronger demand for these categories. This is further substantiated by the lower prime vacancy rates relative to the secondary market.
Rental rates are expected to remain stable. Incentives continue to be high nationwide, with some locations reporting incentives exceeding 40 per cent. Market conditions are showing signs of easing and a reduction in incentives is anticipated over the next year. This is particularly probable in markets such as Brisbane, where demand is robust and supply is constrained.
Given the prevailing leasing market conditions, general market environment and the reported high incentives, substantial rental growth is not foreseen this year.
In 2025, the office market was predicted to remain generally volatile and uncertain. The major office markets continue to face downward pressure on values. The interplay of interest rates and diminished investor demand, driven by high vacancy rates and negative market sentiment, has resulted in a further softening of yields.
Consequently, and based on the overall market conditions, higher yields are expected in 2026, or, at best, stabilisation. Investors maintain a cautious stance, characterised by a low-risk appetite and a requirement for enhanced returns.
The challenges within the office market are likely to persist for an extended period, particularly as the market navigates generally weaker economic conditions and the specific supply-and-demand dynamics of this segment. The recent interest rate increase is not expected to have an immediate effect on this market but will exert an influence over time.
Read the full Australian Property Month in Review Report for April
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