Australian Office Vacancy Trends: A Buyer's Read

No metric in commercial property has drawn more attention this cycle than office vacancy across the Australian CBDs. Work-from-home patterns, corporate restructuring, and a wave of new supply pushed vacancy rates up across most capitals through 2022 and 2023. Some markets have clawed back ground since; others stay soft. For office investors, the vacancy trajectory feeds straight into rent growth, leasing incentives, and valuation.

The headline rate gets the headlines. What actually decides a purchase sits underneath it: the specific building, its grade, the real economics once incentives are stripped out, and how long the sitting tenants are locked in.

Vacancy is an average. A building can be 100% leased at premium rents in a 15% vacancy market, or vacant at any price in a 6% one. The question that matters is never the headline rate, it is this building.

Where Vacancy Data Comes From

The standard source for Australian CBD office vacancy is the Property Council of Australia (PCA) Office Market Report, out twice a year. The PCA gathers figures from individual building owners and rolls them up to CBD-level totals. Coverage runs largely to A and B grade stock; smaller buildings and C/D grade usually sit outside it.

JLL Real Estate Intelligence, Knight Frank Research, Colliers Office Research, and Savills World Research publish their own numbers, each on slightly different methodology and definitions.

1 Vacancy by CBD

The figures move with every reporting cycle, so treat any single number as a snapshot. The through-lines across the past three years:

Sydney CBD

Vacancy has run below Melbourne, held up by a deeper financial-services tenant base and a tighter new-supply pipeline. Submarkets diverge: the core fringe, Surry Hills and Pyrmont, behaves differently to the traditional CBD.

Melbourne CBD

Vacancy sat higher through 2022-2024: a bigger work-from-home shift, more A grade supply coming through, and a slower corporate return to the office. Recovery is under way but uneven.

Brisbane CBD

Mid-range vacancy, with a substantial state and federal government tenant base underpinning income stability. New supply has been moderate.

Perth CBD

Vacancy stays higher, a hangover from the post-mining-investment correction. The market has settled, but A grade incentives are still elevated.

Adelaide CBD

Lower vacancy than the other capitals, on the back of a deep government tenant base and tighter supply.

2 Net Effective vs Face Rent

The rent number in an agency report is almost always face rent. In markets carrying heavy incentives, the economic rent, net effective rent, sits well below it.

Face rent

The rent written into the lease. This is what agency market series and PCA data report.

Lease incentive

Rent-free periods, fit-out contributions, capital contributions to the tenant. In the financial model these are amortised over the lease term.

Net effective rent

Face rent less the amortised incentive: the rent the landlord actually earns over the lease term.

Where incentives run 30% to 40%, as they do in current Melbourne CBD A grade in some submarkets, net effective rent lands 30% to 40% below face. Valuation is done on net effective. So is any buyer-side review worth the name.

3 The Grade Dimension

Vacancy splits hard by office grade.

A grade

Premium and A grade office has generally beaten lower grades on both retention and rent. The flight to quality has held A grade pricing up.

B grade

Mixed. Well-located B grade in established precincts has held up reasonably; secondary B grade has weakened.

C and D grade

The weakest end of the market. Plenty of older C grade buildings are functionally obsolete against what tenants now want. Some make sense only as conversion candidates for residential, hotel, or student accommodation.

4 The Lease Length Question

Leases have got shorter across many submarkets since 2020. Corporate terms that ran 7 to 12 years pre-2020 now often sit at 3 to 7 years, a direct read on how uncertain tenants are about future space requirements.

Shorter leases mean more frequent re-leasing events, and each one brings fresh incentive amortisation, more capex on fit-outs, and more cyclical exposure. Investors price that in: the yield needed to compensate runs higher than for long-WALE office.

5 The Tenant Mix Shift

The post-2020 cycle has reshuffled who occupies the CBD. Technology and professional services have gone both ways, growing in some submarkets and contracting in others. Financial services has largely returned to the office at high rates and remains the anchor employer base in Sydney CBD. Government has done the same in Canberra, Hobart, and Adelaide CBDs. Coworking and flex now take a larger share of total office demand, and the tenant mix inside coworking-leased buildings has changed with it.

6 Buyer-Side Framework

Underwrite at net effective

Build the cash flow model on net effective rent. Face rent overstates economic return in incentive-heavy markets.

Stress-test the WALE

Model the re-leasing event at WALE end. What rent does the tenant pay at renewal, what incentive does that take, and how long does the space realistically sit before it re-lets?

Test the submarket against headline vacancy

Submarket-level vacancy can sit a long way from the CBD average. The specific submarket and grade tell you more than the headline ever will.

Capex liability

Lease incentives reduce net effective rent; capex on fit-outs at re-leasing events reduces net cash flow. Underwrite both.

Building grade and amenity

Flight to quality has been the single strongest tenant-side dynamic post-2020. Premium and A grade buildings with strong amenity have outperformed.

7 Office Investment Strategies in Current Conditions

Flight-to-quality positioning

Buy premium or A grade office, well located, with strong amenity. The higher entry yield is justified by tenant retention and rent recovery.

Value-add on B grade

Buy B grade at discounted pricing, upgrade amenity and finishes, reposition. More operational complexity, and more potential return.

Conversion plays

Buy C grade or obsolete office to convert to residential, hotel, or student accommodation. This needs specialist development capability.

Specialist office

Medical consulting, technology research, education-related office. The demand dynamics differ from general office.

Frequently Asked Questions

Are office vacancies normalising?

Slowly. Recovery from the post-2020 peak has run unevenly across the capitals. Some submarkets have substantially recovered; others remain elevated. Check the specific reporting cycle before you rely on any figure.

Should I avoid office entirely?

No. Office remains a substantial and necessary component of the commercial property landscape. Asset selection and pricing are what matter; sector-wide avoidance is rarely the right answer.

Will the WFH trend reverse?

Major employers keep lifting the rate at which they require physical office presence. Structural office demand has changed, but the office continues to be the dominant work setting for white-collar work.

How do I get current vacancy data?

The PCA Office Market Report, twice yearly, is the standard reference. Agency research from JLL, Knight Frank, Colliers, and Savills provides more detailed commentary. Always check current data against the most recent reporting cycle.