By Mark Willers - National Director, Mathew Young - Director, Harry Davidson - Associate Director, Charter Keck Cramer
Australia’s CBD office markets are showing early signs of stabilisation, with a clear “flight to quality” emerging across all major capitals as tenants prioritise premium spaces and investors navigate a high interest rate environment.
Sydney Summary
The Sydney office market has recently shown signs of improvement, particularly in premium grade spaces, while overall vacancy rates remain high due to ongoing tenant consolidation, flexible work arrangements, and a supply lag from previous cycles. Elevated tenant incentives continue, especially in sub-markets with greater vacancy, though face rents appear stable or slightly rising. The market is also experiencing a “flight to quality”, with premium buildings recording positive absorption and secondary grades facing negative absorption, a trend driven by businesses seeking higher quality spaces and incentives.
Investment activity has been subdued, with the bifurcation between prime and secondary yields becoming more pronounced as secondary yields soften more than those of prime assets. The higher interest rate environment has increased debt costs and softened yields, making loan serviceability more challenging and stifling transaction volumes. However, the ongoing reshaping of the CBD—supported by major infrastructure projects like the new Metro lines—along with government efforts to encourage a return to the office and narrowing price gaps between buyers and sellers, is expected to boost sales activity and gradually improve occupancy rates as the market continues to adjust.
Melbourne Summary
The Melbourne office market is demonstrating early signs of recovery, with some improvement in occupancy, especially within Premium and A-Grade spaces. However, vacancy rates remain high and overall occupancy is subdued, driven by ongoing tenant consolidation, flexible working patterns, and a lag in supply from previous cycles. Tenant incentives are still elevated, particularly in sub-markets with higher vacancies, though face rents have stabilised and are beginning to edge upwards for higher quality assets.
Charter Keck Cramer notes a widening gap between prime and secondary yields, with secondary yields likely having softened more noticeably, a trend expected to become clearer as transaction volumes pick up. The elevated interest rate environment continues to challenge net cashflows and interest cover, stifling investment activity. Ongoing major infrastructure projects, including the nearing completion of the Metro Tunnel, are expected to enhance CBD connectivity and may positively influence office occupancy in certain precincts. As price expectations between buyers and sellers converge, increased sales activity is anticipated in the latter part of 2025 and into 2026, particularly as some owners are compelled to recycle capital due to rising costs and weaker cashflows
Brisbane Summary
In Brisbane, leasing demand strengthened post-lockdowns, with face rents increasing due to both higher demand and inflationary pressures, although recent evidence suggests a slight tapering in activity. Tenant incentives remain elevated, especially in premium and A-grade buildings, reflecting increased construction and fitout costs. The market continues to see a "flight to quality," with premium and A-grade buildings outperforming secondary assets in terms of vacancy and rental growth. As of July 2025, Brisbane CBD vacancy rates stood at 10.7%, with ongoing and future developments largely pre-committed, indicating sustained demand for high-quality office space and limited relief from new supply.
The Queensland office property market experienced strong demand for securely leased, highquality assets throughout 2021 and early 2022, driven by low interest rates and a limited supply of investment options. However, following the Reserve Bank of Australia's rate hikes starting in May 2022, demand softened, with fewer purchasers and properties available. As the market adjusts, yields have softened—particularly for larger and secondary assets with higher cashflow risk— leading to a decline in capital values, despite rising rents. By early 2025, yields for premium grade office buildings averaged 6.75% to 7.00%, with secondary assets at around 8.25% to 8.50%. Owneroccupiers have remained active, less affected by traditional investment returns.
This article has been republished with permission from Charter Keck Cramer. Read full report here.