Due to the final recovery in return-to-work rates in the larger markets and the elevated levels of new supply expected to be delivered over the next year, CBRE expects CBD office vacancy rates to peak at 13.5% in 2024.

With [Australian] CBD office markets exiting the downcycle in a much stronger position than general sentiment would suggest, the property researcher expects a gradual vacancy rate recovery as construction slows and leasing demand accelerates.

According to the Property Council of Australia’s recently released biannual CBD office markets update, the national CBD vacancy rate increased by 20 basis points in the last six months, from 12.6% to 12.8%, the highest rate since 1996.

Recent major office contractions in Sydney included:

  • Westpac at 275 Kent Street.
  • Lendlease’s Barangaroo Towers, the ATO relocating and contracting.
  • Department of Corrective Services relocating and downsizing at 20 Lee Street.

Meantime, in Melbourne, noteworthy [major] office contractions included:

  • BHP at 171 Collins Street.
  • Department of Home Affairs on the corner of Latrobe and Harbour Esplanade.
  • AustralianSuper at 130 Lonsdale Street.
  • The Age at 655 Collins Street.

Anecdotally, the prospects of a hot summer, courtesy of an El Nino weather event, may see more workers drift back into the CBD office locations over the next few months.

But within its latest market update – which compares office market conditions as of July 2023 to conditions in July 2019 – CBRE notes most CBD offices are in a strong leasing position with elevated CBD vacancy rates being driven by a small number of assets.

As of Q2 2023, 62% of Australian CBD office properties had occupancy rates of greater than 90%, while 15% of properties in these CBD markets had occupancy rates between 80% and 90%.

Canberra leads the charge

CBRE’s research shows the share of well-occupied office properties being consistent across each of the Australian cities, with Canberra having the highest occupancy at 66%, this is followed by:

  • Sydney at 65%,
  • Adelaide at 64%,
  • Brisbane at 62%,
  • Melbourne at 61%
  • Perth at 54%.

Near-term uptick

While overall vacancy rates may increase marginally over the near term, CBRE Research Manager Thomas Biglands expects well-situated and high-quality office properties to witness elevated occupancy rates over this time.

What led to a period of slower leasing activity and rising vacancy rates, adds Mark Curtain, CBRE senior managing director, advisory & transaction services was the lockdown period which forced occupiers to rethink their office requirements and required a shift towards hybrid working models.

“Despite these shifts, office market conditions in Australia are reversing course and showing real signs of improvement. We are coming out of this period in a much stronger position than general sentiment would suggest.”