Sydney CBD office vacancy fell to 13.9 percent in Q2 2026, but the recovery is concentrated in premium buildings, leaving secondary stock and non-CBD markets behind.
Property & Suburbs Desk is a contributing writer covering city and public affairs for The Sydney Times.
Sydney CBD office vacancy fell to 13.9 percent in Q2 2026, marking a gradual recovery from the 15.5 percent peak in 2024, but the improvement is concentrated in premium buildings, leaving secondary stock and non-CBD markets with elevated vacancy and weak rental growth.
JLL's Sydney Office Market Dynamics report for Q2 2026 shows that the CBD recorded 39,300 square metres of year-to-date net absorption, with vacancy falling 0.7 percentage points from 14.6 percent at the end of 2025. No new supply was delivered in Q1 or Q2 2026, a significant shift from the 76,500 square metres and 162,100 square metres completed in 2025 and 2024 respectively. The absence of new completions has allowed existing stock to absorb demand more effectively, supporting rental growth.
Knight Frank's Sydney CBD Office Market H1 2026 report shows that premium vacancy has tightened from 13 percent to 8.9 percent over the last two years, while secondary vacancy remains elevated at 14.9 percent. The divergence reflects the structural flight-to-quality trend that has become increasingly evident over the past five years. The secondary market has recorded cumulative negative absorption of 230,866 square metres over that period, while the premium market has achieved positive absorption of 314,100 square metres.
CBRE's Sydney CBD Office Figures Q1 2026 report shows that no new office space will be delivered to the Sydney CBD in 2026, with office development set to slow substantially going forward. The overall CBD vacancy rate ended H2 2025 at 13.8 percent, a slight increase of 7 basis points from mid-year 2025.
The premium market is being driven by tenants upgrading to high-quality, amenity-rich space. Charter Hall's Chifley South development, offering 42,000 square metres of premium-grade space, is well advanced and has already secured more than 50 percent tenant commitments. Mirvac and Mitsui Fudosan's 55 Pitt Street project, offering 63,000 square metres, has achieved over 40 percent pre-commitment. Dexus's Atlassian Central, offering 58,000 square metres, is scheduled for completion in 2027 and is fully committed by Atlassian.
Prime net face rents increased by 5.5 percent over the year to Q4 2025, reaching $1,397 per square metre. Core precinct rents grew by 8.2 percent year-on-year, the strongest level of growth across all precincts. Incentives in the Core fell from 34 percent to 32.4 percent, and Barangaroo eased from 34 percent to 33 percent. In contrast, incentives in the Western and Southern precincts increased to 41.2 percent and 42 percent respectively.
The flight-to-quality trend is being driven by three factors. First, tenants are seeking space that supports hybrid work arrangements, with better amenities, more flexible floor plates and improved building technology. Second, ESG requirements are pushing tenants towards buildings with better environmental credentials, which are typically newer premium-grade assets. Third, the lack of new supply in the premium segment is creating scarcity value, which is supporting rental growth and reducing vacancy.
While the premium market is recovering, the secondary market remains under pressure. Secondary vacancy sits at 14.9 percent, with incentives remaining above 40 percent in some assets. Net effective rental growth in the Western and Southern precincts is negative, reflecting the oversupply of older, less amenity-rich space that does not meet the requirements of modern tenants.
The non-CBD markets are also challenged. JLL's data shows that the overall Sydney office vacancy rate remained flat over Q1 2026 at 21.5 percent, with the CBD remaining the key source of positive demand while some non-CBD markets remain challenged. Prime gross effective rents grew 3.9 percent over Q1 2026, but rent growth remains challenging across Sydney's non-CBD markets due to elevated vacancy rates.
The Sydney CBD office market is expected to enter a very low supply period over the next two years, with only three buildings currently under construction and all scheduled for completion in 2027. The limited supply pipeline, combined with positive absorption in the premium segment, is expected to support rental growth and reduce vacancy in prime assets. However, secondary assets will continue to face pressure until the broader market absorbs the existing oversupply.
The outlook for office investment is also improving. Sydney CBD transaction volumes totalled $3.3 billion over the year to Q2 2026, with the sale of Grosvenor Place to GPT and the Commonwealth Superannuation Corporation for approximately $1.3 billion representing one of the most significant office transactions in the past five years. Domestic capital accounted for 43 percent of total investment volume, marking a shift from 2022 when offshore capital dominated.
The recovery in the Sydney CBD office market is real, but it is also uneven. Tenants are upgrading to premium space, leaving secondary assets behind. The market is bifurcating into winners and losers, with the gap between prime and secondary widening. For property owners with secondary stock, the challenge is to reposition assets to meet the requirements of modern tenants or accept lower rents and higher vacancy. For tenants, the market is finally starting to offer choice, with incentives remaining high in secondary assets and rental growth stabilising in premium buildings. For more on Sydney property, see Property & Suburbs.
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