Strong demand for premium CBD offices while secondary buildings struggle

Australia’s major central business districts are in the midst of profound change.

Hybrid working has become the new normal, changing the way businesses use office space and challenging the traditional image of a vibrant CBD.

While overall demand shows some confidence, the picture is far from uniform.

Market data shows that businesses are turning to high-quality, modern offices in prime locations, while older and less desirable buildings are struggling to attract tenants.

CBD offices across the country added approximately 33,000 square meters of space in early 2024, according to JLL property.

JLL Australasia research head Andrew Ballantyne said the figures showed businesses were gaining clarity on their office needs.

“Organizations are gaining confidence in defining their professional footprint, resulting in a clear balance between organizations seeking more office space,” Mr Ballantyne said.

Primary and secondary: A clear distinction

The contrast is very sharp. Top quality office space increased by 190,000 sq ft in the 12 months to March 2024, while older secondary offices lost 234,000 sq ft.

Simply put, most organizations moving offices are now opting for better quality spaces and increasingly leaving older buildings vacant.

CBRE office chair and capital markets research associate Tom Broderick explained that changes also depend on the size of the business.

“It’s about the size of the business/tenant. In 2025, we’ve seen small and medium-sized businesses occupying less than 1,000 square feet typically grow by 23 percent when they commit to a new lease,” Mr. Broderick told NewsWire.

“Large companies larger than 3000 square meters generally shrink by 11 percent in 2025. However, two years ago, the average shrinkage was 22 percent.

“We are approaching a stable situation for larger tenants where they are more comfortable with their existing footprint and some are expanding again due to business needs.”

City recovery uneven

Not all CBD returns at the same rate.

Sydney CBD led the way earlier this year, with strong growth in premium offices and offsetting losses in older buildings. The decrease in sublease availability has also helped companies reclaim unused space.

Melbourne CBD continues to be delayed. Hybrid working and new office supply have increased the vacancy rate from 16.6 percent at the beginning of the year to 18 percent by mid-2024. Smaller flexible offices are in demand, but older buildings are struggling to attract tenants.

Brisbane CBD is performing better, with eight consecutive periods of positive growth. Vacancies in Prime Minister’s offices are at their lowest level in recent years and rents have increased by 12 percent compared to last year.

Adelaide CBD has exceeded expectations with occupancy reaching 88 per cent of pre-Covid levels. Demand again appears to be strongest for prime areas, with secondary offices lagging behind.

Hybrid work is here to stay

Despite some improvement, full-time office life is unlikely to return.

“The expectation is that hybrid working is here to stay,” Mr. Broderick said.

“Most smaller markets such as Perth, Adelaide and Brisbane have probably reached a stable situation with peak days (Tuesday to Thursday) very close to pre-pandemic levels.

“Sydney is also not far from this level. Melbourne is where a further gradual recovery is likely to occur in the coming years.”

Financial pressures are also shaping the way businesses rent space. While rents remain largely stable, landlords are offering incentives exceeding 40 percent in some markets to attract and retain tenants.

Lease terms have stabilized at just under 30 months, compared to shorter terms during the pandemic; This shows that confidence in long-term office commitments is increasing despite hybrid arrangements.

Transformation riddle

Although many offices are underutilized, the conversion of vacant buildings into apartments has stopped.

High construction costs and strict building codes make conversions expensive. Many business owners are renovating offices or taking them off the market instead.

Experts say government incentives may be needed to make conversions financially viable.

The message for businesses is clear: Office strategy must evolve.

While world-class buildings remain strong, hybrid working is here to stay, and many companies have downsized so much that they will likely never return to full pre-pandemic office use.