Low supply triggers 29 per cent surge in Australian CBD office leasing
Historically low levels of supply have driven a 29 per cent increase in gross leasing activity across Australia’s CBD office markets.
The year-on-year growth was propelled by all corners of the market, from smaller tenants to mid-size and large occupiers, in the second quarter of this year.
The data is captured in the Colliers Q2 CBD Office Snapshot report, which also highlights a major “flight to quality” influencing the market.
Premium office spaces in demand
Most leasing activity in the quarter was driven by tenants upgrading their premises and expanding into A and B-grade assets.
A-grade assets accounted for 53 per cent of area leased, while B-grade assets recorded stronger deal activity, representing just under half of all transactions, the report has found.
Vacancies in premium-grade buildings fell slightly from a peak of 12.4 per cent to 11.4 per cent as tenants continue to seek the best buildings their money can buy.
“That flight to quality demand is a story that we’ve been talking about for quite some time now; it feels a bit repetitive, but it’s what’s happening in the market,” says Joanne Henderson, national director of research at Colliers. “We’ve seen more limited options for space, particularly in premium high-rise floors.”
Geopolitical tensions and inflation stall development pipeline
Economic forecasts in 2025 signalled good news for development feasibility, but inflationary pressure stemming from the conflict between the US and Iran led construction companies to revise their cost forecasts.
Constrained market conditions are likely to delay construction timelines of the approximately 436,500 square metres of office developments, both new and refurbished, that remain in the pipeline.
This major obstacle has hamstrung not only office development, but construction across all sectors, including residential, industrial and retail.
“It is quite a significant drop from our historical averages,” Henderson says. “If we look at the last two years, we can look at the impact – 2025 was 23 per cent down on the historical annual average, and then in 2026 we’ve been down almost 50 per cent on those historical averages.”
No new offices or refurbished projects were delivered in Q2 across any of the CBD markets.
But where there is supply set for completion within the year, it’s in Melbourne. Colliers data shows Melbourne will account for 70 per cent of full-year completions. This is largely due to the Cbus Property development at 435 Bourke Street, which is 70 per cent committed, with tenants including CBA, Unisuper, Baker Mackenzie and Hostplus.
Further supply of 156,800 square metres is scheduled to come online in the next six months across CBDs nationally.
In Brisbane, 17,500 square metres of speculative supply is expected in 2027. This includes the 72,000 square metres of office space at Waterfront Brisbane, which is 72 per cent pre-committed ahead of its scheduled 2028 completion.
Subdued capital markets contrast with resilient rental growth
Interest-rate uncertainty and geopolitical influences subdued sales activity in the first six months of the year. Currently, Colliers estimates that $3 billion in CBD assets are in due diligence.
Overall, sales activity totalled $827.1 million across seven assets in Q2. This brings the January to June 2026 total to $1.43 billion, which is 15 per cent down on the same period last year.
The sales activity was mainly driven by activity in Sydney, including the $540 million sale of the O’Connell Precinct to Charter Hall by Lendlease in February.
An upside of the shortage of new buildings coming onto the market is rental growth. Colliers data found premium-grade net effective rents are now 0.9 per cent above their previous cyclical peak in Q1 2020. In high-quality A-grade stock, net face rent rose by 1 per cent over the quarter.
Growth at the top end of the market was a sign of good things to come for the entire market, Henderson says.
“It’s quite a cyclical, important point in the market because premium tends to move first and then you start to get that trickle down into other parts of the market into A-grade and then into better quality B-grade stock,” she says.
