Premium office demand remains strong while lower grades register declining occupancy
Australia’s central business districts have recorded a modest increase in office vacancy, according to the latest figures from the Property Council of Australia.
The council’s July 2025 Office Market Report shows the national CBD office vacancy rate rose from 13.7% to 14.3% in the first half of the year, driven largely by a steady influx of new, high-quality office developments.
Over 200,000 square metres of new office space entered the CBD markets during the period, surpassing the level of tenant demand and contributing to the higher vacancy rate. In the past five years, 2.6 million square metres of new supply has been delivered, representing 13.7% of total CBD office stock.
Premium office space continues to attract tenants, with occupied premium stock rising 2.7% in the last six months – a 7% increase year-on-year. In contrast, Grade A office occupancy edged up just 0.1%, while Grades B, C and D saw declines of 0.5%, 0.3% and 0.4%, respectively. Industry classifications place Premium and A Grade offices as ‘prime’ stock, while B, C and D are considered ‘secondary’.
“The continuous supply of new high-quality office space in our CBDs is a response to businesses searching out great places for their employees to work in,” said Mike Zorbas (pictured right), chief executive of the Property Council of Australia. “Tenants are capitalising on opportunities to occupy premium buildings in prime CBD locations, with premium space continuing to see higher demand levels than lower-grade buildings.
“We have seen a year and a half of positive demand for office space, with more businesses taking up office space than leaving behind. Much of this demand is centred on Premium and A Grade buildings, with B, C and D grade office buildings experiencing negative demand over the last six months.”
Sublease vacancy in CBDs has dropped to 0.8%, the lowest since July 2020 and down 0.6 percentage points from the peak in July 2021. Sublease space, typically offered by larger firms leasing out unused areas, has steadily declined across all major cities.
“Pleasingly, we have seen a notable decline in the sublease space over the last two years, with every city recording sublease vacancies below their historical average,” Zorbas said. “Sublease space in our CBDs is at its lowest point in nearly five years after rising during the pandemic.”
Looking ahead, an additional 131,697 square metres of office supply is expected to be completed in the next six months, with new projects spread across Adelaide, Canberra, Melbourne and Sydney.
Outside the CBDs, the office vacancy rate edged up from 17.2% to 17.3%, as limited supply and slightly negative demand weighed on the market. Nationally, the overall office vacancy rate increased from 14.7% to 15.2%.
Vacancy rates varied across major cities. Canberra’s vacancy rate increased from 9.2% to 10.7% as new supply outpaced demand. Brisbane’s rate rose from 10.2% to 10.7% for similar reasons, while Sydney’s vacancy rate climbed from 12.8% to 13.7% due to high levels of new supply.
Adelaide’s vacancy rate fell from 16.4% to 15% on the back of positive demand and low supply. Perth’s rate increased from 15.1% to 17% as a result of more supply and negative net absorption and Melbourne’s vacancy rate declined slightly from 18% to 17.9% as demand and withdrawals outstripped the small amount of new supply.
For mortgage brokers, these trends indicate a shifting commercial property landscape. Higher vacancies and increased supply may influence property values and lending conditions, prompting brokers to adapt to changing client needs and advise on commercial loan strategies in a dynamic market.
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