Office vacancy rates hold steady despite new supply surge

Australia's office market is showing plenty of resilience as vacancy rates remain relatively stable despite significant new supply entering the market across major cities. The latest Office Market Report from the Property Council has found that CBD office vacancy experienced only a marginal increase from 13.6 to 13.7 per cent over the six months to January 2025, while non-CBD rates held steady at 17.2 per cent.

Different cities showed varying trends, with Adelaide and Perth seeing improvements in their vacancy rates, while Sydney and Brisbane experienced increases due to new supply entering the market. Property Council Chief Executive Mike Zorbas said the continued strength of the office market was a positive.

"We have continued to see the supply of new office space above or near the historical average, providing access to a wealth of new, high-quality office space in our cities," Mr Zorbas said. Sydney's office market saw the most significant change, with vacancy rates climbing from 11.6 to 12.8 per cent, driven by more than 164,000 square metres of new supply - more than double the historical average.

Melbourne maintained its position as the city with the highest vacancy rate at 18 per cent, prompting calls for government intervention. "Melbourne continues to have the highest CBD office vacancy in the country. We need to see active leadership from the state government to support the vibrancy of the CBD and help Melbourne remain one of the best cities to visit in the world," Mr Zorbas said.

Notably, Hobart retained its position as the tightest office market in the country, despite a slight increase from 2.8 to 3.6 per cent vacancy, while Darwin showed the most improvement with rates falling from 14.4 to 11.9 per cent. The outlook remains positive with substantial pre-commitments for future developments. Sydney is set to see 277,048 square metres of new office supply by 2027, with almost half already pre-committed, while Brisbane shows strong confidence with 67.9 per cent of its upcoming 162,630 square metres pre-committed.

Sublease vacancy, a key indicator of business confidence, showed improvement across both CBD and non-CBD markets, with only Melbourne and Brisbane recording rates above their historical averages. "Over the last three and a half years, positive demand for office space in our CBDs has been recorded in five of the last seven reporting periods.

Sydney, Perth, Adelaide and Canberra saw positive demand for office space above their historical averages in the last six months," Mr Zorbas said. "High levels of supply show that businesses still call our CBDs home as they balance flexible working arrangements with face-to-face contact in the office."