The Sydney CBD office market remains split between high-performing premium assets and struggling secondary stock. New project completions have lifted vacancy rates, but quality buildings continue to attract strong tenant and investor interest.
New buildings lift vacancy, but not everywhere
The overall Sydney CBD vacancy rate rose to 13.7% this quarter, up from 12.8%. This increase reflects a steady stream of new projects completing faster than tenants can absorb them.
The standout addition was 33 Alfred Street, delivering 31,657 sqm of premium-grade space, already 85% leased before completion. Tenants such as Allens, Pinsent Masons, and BlackRock have each secured large portions of the building, a sign that top-tier space continues to attract commitment even in a softening market.
Premium buildings remain the clear winners, with vacancy actually declining to 9.8%, down from 10.9%. Refurbished and well-located assets, like 1 Shelley Street (32,000 sqm, with 10,000 sqm pre-committed by WPP) and 1 Martin Place (10,300 sqm, including commitments from RSM and Metrics Credit Partners), continue to draw tenant attention.
Leasing demand slows but stays healthy
Leasing activity softened compared to earlier in the year, with around 10,300 sqm of net absorption recorded in Q3. However, enquiry levels picked up as confidence gradually returned.
According to CBRE, 96 leasing enquiries totalling more than 122,000 sqm were logged during the quarter — an improvement from Q2. The average brief size has grown to about 1,200 sqm, up from 730 sqm last year, suggesting that larger corporates are driving much of the current movement.
This pattern reflects an ongoing “flight to quality” as occupiers consolidate space and invest in higher-quality, central locations rather than expand into secondary stock.
Premium rents rise, while older offices struggle
Rental growth continues to favour premium and A-grade properties. In the CBD Core, premium-grade net effective rents reached $902/sqm per annum, up 9.8% year-on-year, while incentives held steady at around 35%.
A-grade rents also improved slightly, rising 2.3% year-on-year to $732/sqm per annum, with incentives easing just below 37%.
In contrast, secondary stock remains under clear pressure. Rents have fallen 5.8% year-on-year to about $508/sqm per annum, and incentives have climbed above 40%, as landlords compete to fill vacancies.
The gap between prime and secondary performance is widening, with quality, location, and amenity now more important than ever in attracting tenants.
Investors returning cautiously
Investor confidence improved slightly in Q3 as yields stabilised and leasing activity in prime buildings remained strong.
Several major deals closed during the quarter:
- 75 Elizabeth Street — sold to the Sydney Catholic Archdiocese for $97 million (vendor: Kingold Group).
- 400 Kent Street — purchased by Cambridge RE Partners from Terraform Capital for $112.6 million.
- Thirty Hickson – Dexus are in the process of offloading The Bond for $280M, $20M over book valuation, to AsheMorgan who are currently in due diligence.
Both domestic and offshore buyers are active again, targeting well-located assets with strong tenant profiles. With yields holding steady, and a clearer outlook forming for 2026, confidence is cautiously returning to the CBD investment scene.
What’s next for the Sydney CBD?
Looking ahead, the Sydney CBD office market is expected to remain two-speed:
- Prime assets should continue to benefit from solid demand and limited new competition.
- Secondary buildings will face more headwinds, with elevated incentives and slower leasing momentum likely to persist.
However, as major new projects complete and the pipeline slows, vacancy rates could begin to stabilise through 2026. Dexus research suggests early signs of recovery in rent growth and capital values as supply eases and economic conditions improve.
Sources
- Cushman & Wakefield – MarketBeat: Sydney CBD Office Q3 2025
- CBRE – Sydney CBD Office Figures Q3 2025
- Knight Frank – Sydney CBD Office: State of the Market Q3 2025
- Dexus – Australian Real Asset Quarterly Review Q3 2025
- https://www.realcommercial.com.au/news/dexus-offloads-barangaroo-office-the-bond-in-280m-ashemorgan-deal
