What will drive rent growth in the Australian office market?

Prior to 2020, sustained growth in white-collar employment drove strong demand for office space in Australia. With limited new supply in earlier years, this pushed CBD vacancy rates down to 8.3% in 2019, while prime effective rents increased by 7.3% p.a. over the five years to 2019, stimulating a wave of development activity. However, many of these projects were completed post-COVID, when workplace dynamics changed fundamentally with the widespread adoption of hybrid working models. As a result, office demand moderated just as new stock entered the market, lifting national CBD vacancy rates up to 14.7% and causing a correction in effective rents.

Despite these structural headwinds, the Australian CBD office market has shown notable resilience. The flight-to-quality and occupiers' centralisation fuelled strong demand for premium space, leading to positive net absorption in 12 out of 13 quarters since mid-2022, totalling 375,700 sqm over the period. Consequently, prime effective rents have exceeded expectations across Australian CBDs, particularly in Sydney and Brisbane, where double-digit growth rates are projected for 2025.

The market outlook remains positive, especially for high-quality assets. Figure 1 shows vacancy rates for premium-grade buildings have tightened to 11.1%, well below those for A-grade (15.6%) and secondary-grade buildings (16.6%). Additionally, major Australian CBD precincts, such as Sydney CBD’s Core and Brisbane CBD’s Golden Triangle, have recorded premium vacancy rates below 10% in 2025. Meanwhile, hybrid working trends have largely stabilised, and strong demographic tailwinds are expected to support future office demand. These factors point to the potential for substantial rent growth in the coming years, particularly given the subdued medium-term supply outlook.

Figure 1: Australian CBD office vacancy rates by grade, 2019 to 2025

Source: JLL Research as of Q3 2025

Escalating construction costs continue to limit project feasibility. JLL Research estimates economic rents are currently around 40% higher than prime rents in Sydney CBD and over 65% higher in Melbourne CBD, Australia’s two largest office markets. Going forward, ongoing inflation risks and the potential for ‘higher-for-longer’ interest rates may create further challenges for new developments.

The medium-term supply pipeline remains subdued. JLL Research forecasts new CBD office completions will average 212,500 sqm annually between 2026 and 2030, around 45% below the 20-year historical average (Figure 2). Most of this new space is expected in 2026 and 2027, with major developments such as Atlassian Central, 55 Pitt Street, and Chifley South in Sydney CBD, and 7 Spencer Street, 435 Bourke Street, and 51 Flinders Lane in Melbourne CBD driving much of the delivery. The ongoing construction challenges may also push projects that are in the planning stages beyond 2030. Reflecting these dynamics, JLL Research has downgraded its supply forecasts, with expected completions over 2026 to 2030 now standing approximately 23% below the forecasts produced 12 months ago, as shown in Figure 2.

Figure 2: Australian CBD office supply forecast

Source: JLL Research as of Q3 2025

Sustained occupier demand, limited new supply, and rising economic rents are expected to place downward pressure on vacancy rates. These dynamics position the Australian CBD office market for renewed rental outperformance over the medium term, particularly for prime, well-located office assets.