Sydney CBD office vacancy has fallen to 13.3 percent as premium-grade space attracts sustained tenant demand, but secondary stock continues to struggle in a market bifurcated by quality.
Business & Markets Desk is a contributing writer covering business and public affairs for The Sydney Times.
Sydney CBD office vacancy has fallen to 13.3 percent, down from 13.8 percent six months earlier, as tenant demand increasingly concentrates in premium-grade buildings that offer better amenities, location, and sustainability credentials. The improvement, reported in the Property Council of Australia's Office Market Report for the second quarter of 2026, marks the fourth consecutive reporting period of positive net absorption and suggests that the market is stabilising after three years of elevated vacancy and declining rents. The recovery is not uniform, however, with secondary-grade office space continuing to lose tenants to premium buildings and to the metropolitan fringe, where vacancy remains structurally elevated.
The divergence between prime and secondary stock is the defining characteristic of the current Sydney office market. Prime vacancy tightened to 7.7 percent in the second quarter, down from 8.9 percent six months earlier, as tenants consolidated into better-located buildings with higher amenity standards and stronger environmental credentials. Secondary vacancy edged up to 14.9 percent, reflecting ongoing pressure on older buildings that lack the investment required to compete with new and refurbished premium stock. The flight to quality is accelerating the obsolescence of secondary-grade space, with owners facing a binary choice between substantial capital investment to reposition buildings or conversion to alternative uses including residential and life sciences laboratories.
Transaction volumes in the Sydney CBD office market have picked up in the second quarter, with two landmark deals illustrating renewed investor appetite for premium assets despite broader market caution. Salesforce Tower at 180 George Street was acquired by OE REIT from Mitsubishi Estate for $257.2 million, representing a net initial yield of roughly 5.2 percent. The O'Connell Precinct portfolio, comprising three adjacent buildings in the northern CBD, was purchased by Charter Hall Group from the Abu Dhabi Investment Authority for $500 million, representing a net initial yield of roughly 5.0 percent.
The deals illustrate a growing willingness among domestic and offshore investors to deploy capital into premium CBD assets despite elevated overall vacancy. The buyers are focused on the long-term income stability of prime office buildings with strong tenant covenants and sustainability certifications, which they believe will outperform secondary stock as the market recovers. The sellers, including Mitsubishi Estate and ADIA, are reducing their exposure to Australian commercial real estate as part of global portfolio rebalancing, which is creating acquisition opportunities for domestic investors and listed property trusts.
The CBRE Sydney CBD Office Figures for the second quarter of 2026 confirm the improving sentiment, with enquiry volumes up 19 percent in the first half of the year as occupiers regain confidence despite global uncertainty. No new office space was delivered to the Sydney CBD in 2026, which has helped to reduce the supply overhang that had pressured rents and valuations in previous years. The next major delivery is the 8-10 Lee Street development, adding 58,000 square metres of premium space in the fourth quarter of 2026, with Atlassian subleasing roughly 20,000 square metres of that space as it consolidates its Sydney headquarters.
The Sydney CBD development pipeline remains robust, with more than 179,675 square metres of space anticipated to enter the market over the next 18 months and a further 327,844 square metres of future space mooted. The supply is heavily concentrated in premium-grade developments, with more than 61 percent of future supply already pre-committed to tenants who have signed leases during the vacancy peak in exchange for generous incentives. The pre-commitment levels are supporting rental stability in core assets, because they reduce the risk that new supply will flood the market with vacant space.
Property Council NSW Executive Director Katie Stevenson said the result showed the Sydney CBD office market was continuing to stabilise, but with tenant demand increasingly concentrated in higher-quality premium buildings. She noted that Sydney's outer office markets remain under pressure, recording some of the highest vacancy rates nationally as tenants favour well-located, high-quality assets. The trend is consistent with the broader flight to quality dynamic, which is reshaping demand across the entire Sydney metropolitan office market.
Investors and tenants should monitor the delivery of the 8-10 Lee Street development and the subsequent release of Atlassian's sublease space, which could create a temporary oversupply of premium space in the Sydney CBD market. The risk is mitigated by the strong pre-commitment levels in the pipeline and the ongoing demand from technology and professional services firms that require high-quality space to attract talent. Explore more commercial property analysis at the Business & Markets hub
For the Property Council of Australia's Office Market Report, see Property Council NSW Office Market Report 2026. CBRE Sydney CBD Office Figures are available at CBRE Australia.
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