Office vacancy across the Australian CBDs has been the most-discussed commercial property metric of the post-2020 cycle. The combination of work-from-home patterns, corporate restructuring, and substantial new supply has produced elevated vacancy rates across most capitals through 2022 and 2023, with gradual recovery in some markets and ongoing softness in others. For commercial office investors, the vacancy trajectory directly affects rent growth, leasing incentives, and valuation.
This guide covers the current Australian office vacancy picture by capital city, what the headline rates actually mean for individual buildings, the lease incentive dimension that often overshadows headline vacancy, and the buyer-side framework for office acquisition in the current cycle.
Vacancy is a market average. Individual buildings can be 100% leased at premium rents in a 15% vacancy market or vacant at any price in a 6% vacancy market. The buyer-side question is always about the specific building, not the headline rate.
Where Vacancy Data Comes From
The principal source for Australian CBD office vacancy is the Property Council of Australia (PCA) Office Market Report, published twice yearly. The PCA collects data from individual building owners and aggregates to CBD-level totals. Coverage is largely A and B grade office; smaller buildings and C/D grade are typically excluded.
Other sources include JLL Real Estate Intelligence, Knight Frank Research, Colliers Office Research, and Savills World Research, each with slightly different methodologies and definitions.
1 Vacancy by CBD
Vacancy figures fluctuate with each reporting cycle. Headline themes across the past three years:
Sydney CBD
Lower vacancy than Melbourne, supported by deeper financial-services tenant base and tighter new supply pipeline. Specific submarket variation: core fringe (Surry Hills, Pyrmont) different to traditional CBD.
Melbourne CBD
Higher vacancy through 2022-2024 reflecting more substantial work-from-home shift, more A grade supply pipeline, and slower corporate return-to-office. Recovery underway but uneven.
Brisbane CBD
Mid-range vacancy with substantial state and federal government tenant base providing income stability. New supply has been moderate.
Perth CBD
Higher vacancy persisting from the post-mining-investment correction. The market has moderated but A grade incentives remain elevated.
Adelaide CBD
Lower vacancy than other capitals, supported by deep government tenant base and tighter supply.
2 Net Effective vs Face Rent
The headline rent number from agency reports is typically face rent. The economic rent (net effective rent) is materially lower in markets with elevated incentives:
Face rent
The rent stated in the lease. Reported in agency market series and PCA data.
Lease incentive
Rent-free periods, fit-out contributions, capital contributions to tenant. Amortised over the lease term in the financial model.
Net effective rent
Face rent less the amortised incentive. The economic rent the landlord actually receives over the lease term.
In markets with 30% to 40% incentives (current Melbourne CBD A grade in some submarkets), the net effective rent is 30% to 40% below face rent. Valuation uses net effective; the buyer-side review should use net effective.
3 The Grade Dimension
Vacancy varies materially by office grade:
A grade
Premium and A grade office has generally outperformed lower grades on retention and rent. The flight-to-quality dynamic has supported A grade pricing.
B grade
Variable performance. Well-located B grade in established precincts has performed reasonably; secondary B grade has weakened.
C and D grade
The weakest segment. Many older C grade buildings are functionally obsolete for current tenant requirements. Some are conversion candidates for residential, hotel, or student accommodation.
4 The Lease Length Question
Tenant lease length has shortened in many submarkets post-2020. Pre-2020 corporate leases of 7 to 12 years are now often 3 to 7 years, reflecting tenant uncertainty about future space requirements.
For office investors, shorter leases produce more frequent re-leasing events, which means more incentive amortisation, more capex on fit-outs, and more cyclical exposure. The yield required to compensate is higher than for long-WALE office.
5 The Tenant Mix Shift
The post-2020 cycle has reshaped CBD tenant mix:
- Technology and professional services. Variable across submarkets; some have grown, some have contracted.
- Financial services. Generally returned to office at high rates; major employers in Sydney CBD.
- Government. Returned to office at high rates in Canberra, Hobart, Adelaide CBDs.
- Coworking / flex. Larger share of total office demand; tenant mix in coworking-leased buildings has changed.
6 Buyer-Side Framework
Underwrite at net effective
Use the net effective rent in cash flow modelling. Face rent overstates economic return in incentive-heavy markets.
Stress-test the WALE
Model the re-leasing event at WALE end. What rent will the tenant pay at renewal? What incentive will be required? What re-leasing period is realistic?
Test the submarket against headline vacancy
Submarket-level vacancy can differ materially from CBD average. The specific submarket and grade matter more than the headline.
Capex liability
Lease incentives reduce net effective rent; capex on fit-outs at re-leasing events reduces net cash flow. Both should be in the underwriting.
Building grade and amenity
Flight-to-quality has been the strongest single tenant-side dynamic post-2020. Premium and A grade buildings with strong amenity have outperformed.
7 Office Investment Strategies in Current Conditions
Flight-to-quality positioning
Acquiring premium or A grade office with strong amenity, well-located. Higher entry yield justified by tenant retention and rent recovery.
Value-add on B grade
Acquiring B grade at discounted pricing, upgrading amenity and finishes, repositioning. Higher operational complexity; higher potential return.
Conversion plays
Acquiring C grade or obsolete office for residential, hotel, or student accommodation conversion. Specialist development capability required.
Specialist office
Medical consulting, technology research, education-related office. Different demand dynamics from general office.
Frequently Asked Questions
Are office vacancies normalising?
Slowly. Recovery from the post-2020 peak has been uneven across capitals. Some submarkets have substantially recovered; others remain elevated. Specific reporting cycles should be checked.
Should I avoid office entirely?
Office remains a substantial and necessary component of the commercial property landscape. The specific asset selection and pricing matter; sector-wide avoidance is rarely the right answer.
Will the WFH trend reverse?
Major employers continue to require physical office presence at increasing rates. The structural office demand has changed but office continues to be the dominant work setting for white-collar work.
How do I get current vacancy data?
PCA Office Market Report (twice yearly) is the standard reference. Agency research from JLL, Knight Frank, Colliers, and Savills provides more detailed commentary. Current data should be checked against the most recent reporting cycle.