CBD markets show signs of recovery as workers return to the office

Australia's CBD office markets are demonstrating encouraging signs of recovery, with some major cities recording positive absorption for the first time in years and vacancy rates beginning to stabilise as workers return to the office. However, the latest Property Council data suggests the recovery is being hampered by continued high supply additions, with genuine occupier demand returning to premium city locations but struggling to keep pace with new stock entering the market. Despite this supply challenge, the data suggests the worst of the office market correction may be behind us.

Sydney CBD has delivered some great results despite supply additions hampering recovery. Another 66,952 sqm of net supply entered this market this period causing vacancy to increase to 13.7 per cent from 12.8 per cent as take up over the last six months was recorded at 10,298 sqm. However, encouragingly annual net absorption of 56,532 sqm is the highest on record since 2016. This positive absorption represents a dramatic shift from the negative trends that characterised the market through much of the post-pandemic period and suggests that return-to-office initiatives are gaining genuine traction among Sydney businesses. Sydney's performance reflects the city's premium building stock, transport connectivity, and corporate concentration that continues to attract quality tenants seeking modern, amenity-rich office environments.

Brisbane CBD continues to demonstrate exceptional consistency, leading national CBD performance with outstanding six-monthly net absorption of 27,473 sqm, the strongest result among all major CBD markets. Vacancy remains well-controlled at 10.7 per cent, up only marginally from 10.2 per cent in January 2025, despite significant new supply additions of 45,359 sqm. This represents remarkable market management, with Brisbane successfully accommodating substantial new stock while maintaining strong occupier demand. Brisbane's performance is particularly impressive given the market's size, demonstrating that strong demographic fundamentals and business confidence can overcome broader sector challenges. The consistent positive absorption over multiple reporting periods suggests sustainable demand that positions Brisbane favourably for continued outperformance.

Adelaide CBD has emerged as another standout performer, recording substantial six-monthly net absorption of 22,326 sqm while achieving meaningful vacancy improvement from 16.4 per cent to 15.0 per cent. This represents the most significant improvement relative to market size among major CBD markets and reflects Adelaide's growing appeal to businesses seeking cost-effective, quality office accommodation outside traditional eastern seaboard markets. The strong absorption figures suggest genuine occupier interest in Adelaide echoing positive economic conditions, potentially driven by interstate relocations and local business expansion taking advantage of the city's competitive rental rates and improving amenity offerings.

Perth CBD shows mixed signals, with vacancy now at 17.0 per cent, the highest rate since 2021, however heavily impacted by the strong supply cycle during a time of limited demand. While the last 12-monthly net absorption reached 20,587 sqm, the last six months recorded -4,599 sqm, putting upward pressure on vacancies and impacting overall sentiment. With sublease vacancy elevated at 1.0 per cent, incentives look to remain a feature of this market in the short term.

Even Melbourne CBD, which continues to face the most significant challenges with vacancy at 17.9 per cent, is showing tentative signs of improvement. The market recorded modest positive absorption of 1,446 sqm, a meaningful shift from the substantial negative absorption recorded over the past three years. While the improvement is gradual, it suggests that quality buildings with strong amenities and transport connectivity are beginning to attract occupier interest, while affordability and incentives continue to drive business relocation and expansion.

Canberra maintains its position as a tight CBD market at 10.7 per cent vacancy, with solid absorption of 6,794 sqm despite new supply additions of 47,600 sqm. The market's performance reflects improvement in non-Civic markets such as Barton and the Airport together with stability of government tenancies and Canberra's occupier mix diversifying into more technology and professional services.

Nationally, CBD markets recorded combined net absorption of 63,738 sqm over the six months to July 2025, some of the strongest CBD absorption performance in several years. Total CBD vacancy sits at 14.3 per cent, with the aggregate positive absorption suggesting genuine occupier demand returning to city locations. The recovery appears driven by several converging factors: businesses increasingly implementing structured return-to-office policies, recognising the importance of in-person collaboration and corporate culture development. There's also an accelerating flight to quality, with premium CBD buildings successfully attracting tenants from secondary assets and non-CBD locations through superior amenities, sustainability credentials, and transport connectivity.

As office development across most CBD markets starts to slow, greater favourable absorption conditions off the back of improving business sentiment and economic stability encourage longer-term real estate commitments. While the recovery trajectory remains gradual, the consistent positive absorption across multiple CBD markets suggests a genuine turning point. The challenge now will be maintaining this momentum through continued focus on workplace experience and flexible arrangements that meet evolving occupier needs.