Vacancy rates are showing encouraging signs of improvement in key markets. Sydney CBD has recorded its highest annual net absorption since 2016, while Brisbane continues demonstrating exceptional consistency with the strongest net absorption among all major CBD markets and vacancy remaining well controlled at 10.7 per cent. Adelaide CBD has also shown meaningful improvement, with vacancy compression reflecting improving market fundamentals.
The critical factor underpinning this recovery outlook is the economics of new supply. Construction costs have reached levels where the economic rents required to justify new CBD development are simply unviable in current market conditions. Limited builder availability, rising material costs, and labour shortages have pushed development costs to unprecedented levels. With more than 1.7 million square metres of proposed CBD office projects remaining on hold and only selective refurbishment projects proceeding, the supply constraint is becoming increasingly apparent.
This development freeze creates powerful dynamics for existing stock. As occupier demand continues recovering and new supply remains constrained, rent appreciation becomes inevitable for well-positioned assets. Perth presents perhaps the most extreme example of this dynamic, where the gap between existing face rents and the economic rents required for new development has widened dramatically, creating stronger upward pressure on existing stock values than in other major markets. Premium CBD buildings offering strong environmental credentials, modern amenities, and superior locations are already commanding tenant interest, with the gap between prime and secondary assets continuing to widen. The flight to quality trend is accelerating as corporate occupiers prioritise buildings that align with ESG commitments and offer the workplace experiences needed to encourage office attendance.
The geographic story reinforces this premium asset focus. Queensland markets continue demonstrating strength, with Brisbane CBD and fringe markets maintaining tight fundamentals and positive absorption. Sydney's premium CBD sector is leading the recovery trajectory, while Adelaide's improvement suggests even smaller CBD markets can achieve meaningful vacancy compression when supply remains disciplined and economic fundamentals support business growth.
Looking into 2026, the confluence of improving occupier demand, limited new supply, and renewed institutional interest creates the foundation for CBD office recovery. The assets positioned to benefit most are premium grade buildings in major CBDs that offer modern specifications, strong sustainability credentials, and locations that support corporate objectives around talent attraction and workplace culture. While secondary assets continue facing value pressure and potential alternative use conversions, premium CBD office is transitioning from adjustment to outlook for improvement, with 2026 likely marking the year smart investors position for the recovery ahead.
