Australia’s office markets are seeing a clear split right now between top-tier, amenity-packed buildings and older, dated properties. Across the country, high interest rates and high construction costs mean breaking ground on brand-new office towers is incredibly tough. Instead of starting from scratch, landlords are pivoting toward major renovations, green upgrades and repositioning projects just to keep their existing buildings competitive and stop them from becoming obsolete.
In Melbourne, this clear divide between prime and secondary properties is really making an impact. High-quality spaces are still seeing rental growth and healthy demand from finance and professional services firms. On the flip side, older secondary buildings are hurting, plagued by high vacancies and significant tenant incentives that are hitting up to 50 per cent. While major 2026 project completions like 435 Bourke Street are still coming online, the reality of construction costs means the pipeline of new projects is going to dry up significantly over the next few years.
A very similar trend is playing out in Brisbane, which is outperforming most other capital cities at the moment. Tenants are flocking straight to premium and A-grade buildings, looking for great workplace perks and strong environmental credentials. The completion of 360 Queen Street brought new space to the market, and while it created a bit of temporary backfill vacancy, tenant demand for quality remains strong enough to absorb it. Because building new projects from the ground up is so expensive right now, local property owners are focusing their capital on major building upgrades and better amenities to keep rents moving forward.
In Sydney, the core CBD is still pushing ahead with premium office developments despite a broader market slowdown and high incentive packages. Major transformations like the redevelopment of 33 Alfred Street have set a clear benchmark for what landlords can do with older structures. Huge corporate pre-commitments are driving massive, state-of-the-art additions like the upcoming Atlassian complex and the 53,275-square-metre tower at 2 Chifley Square, both designed with flexible workspaces and premium tenant perks in mind.
However, the story changes completely once you step outside the Sydney CBD into a hub like Parramatta, where the office market is facing a sharp downturn. After a huge wave of new builds pushed local office vacancies up to a massive 22.1 per cent in early 2026, new commercial development has completely stopped. Instead of building more office space, landlords here are focusing on adaptive reuse – removing underperforming secondary office blocks from the commercial pool entirely and converting them into apartments or mixed-use projects.
This trend of turning underutilised office space into residential property is also taking over Darwin. In the city centre, tenant demand for older C and D-grade office space has pretty much dried up because the dated fitouts just do not suit modern businesses. While premium buildings like the Charles Darwin Centre can command gross rents of up to $1000 per square metre because quality space is so rare, building a new tower from scratch is nearly impossible to justify financially. High debt costs and a 10,000-square-metre chunk of uncommitted space coming via the new Council building have put a total freeze on new commercial builds.
Because of this, Darwin property owners are finding they get much better financial returns by converting offices into apartments or short-stay accommodation. Upgrading older buildings to a true A-grade office standard is often too difficult or expensive structurally, which caps their office rental potential at around $600 per square metre. A prominent example of this shift is the old Health House building at 87 Mitchell Street, which is currently being transformed into the 87-key Darwin Suites hotel by IHG. Similar residential conversions are popping up at Winlow House on Woods Street and the old Northern Land Council site on Mitchell Street.
Over in Western Australia, the Perth office market is navigating a very similar economic environment. With construction feasibility under serious pressure from high labour and material costs, the local industry has shifted away from high-risk, ground-up projects. The focus is now squarely on the refurbishment of existing prime buildings. Well-located prime assets are holding up well with steady tenant retention, but secondary properties in weaker fringe locations (such as East Perth and the eastern end of the Perth CBD) that cannot easily be upgraded are starting to see demand soften.
Meanwhile, Adelaide’s office market is dealing with its own distinct evolution as a backlog of older, less efficient office spaces sits empty. South Australian tenants are actively walking away from un-refurbished properties in favour of modern, efficient and well-designed layouts. Because building something new is so economically restrictive under current market conditions, local landlords have little choice but to spend heavily on deep structural updates and sustainability features to keep their buildings relevant.
At the end of the day, Australia’s office sector isn’t moving in one predictable pattern anymore; it’s a localised battle against high construction costs and the potential requirement to refurbish or reposition ageing office buildings. Across every state, workers heading back into the office – like Melbourne’s recovering base of over 65 per cent attendance – are demanding modern, high-quality workspaces. Whether it’s through premium towers rising in Sydney, private syndicates revamping Brisbane assets, or developers converting secondary office space to housing in Parramatta and Darwin, the office sector is dealing with various market challenges that arise across these diverse regional nuances.