Australia’s office market is recording its strongest tenant demand since before COVID, yet vacancies remain elevated, creating a more complex backdrop for mortgage brokers with commercial clients.
New data from Ray White Group shows national office net absorption reached 364,635sqm in the 12 months to January 2026 – the best result since 2018 as businesses expand footprints rather than simply consolidating space. However, 411,561sqm of new completions over the same period pushed national vacancy up to 15.9% from 15.1% six months earlier, leaving a sizeable volume of empty space that will take years to clear.
The rebound in leasing is also playing out against a higher‑rate, higher‑cost funding environment, adding pressure to landlords with short leases or weak covenants
Queensland continues to punch above its weight. Brisbane CBD recorded 48,491sqm of net absorption over the year, supported by additional take‑up on the Gold Coast (5,299sqm) and Sunshine Coast (1,441sqm). The results reflect population growth, corporate relocations, and expanding local businesses translating into real space requirements.
New South Wales also delivered robust gains. Sydney CBD’s 62,896sqm of annual absorption was its strongest since 2016, suggesting prime city towers are again attracting both returning tenants and new entrants. Parramatta (4,062sqm) and Newcastle (4,836sqm) added depth beyond the CBD, highlighting the resilience of Western Sydney and the Hunter.
Victoria’s story centres on Melbourne CBD, which swung back into positive territory with 70,643sqm of take‑up after several years of contraction. Only 29,475sqm was absorbed in the past six months, however, pointing to a measured rather than rapid recovery. Fringe markets such as St Kilda Road, which lost 48,711sqm over the year, are feeling the brunt of the flight to quality as occupiers upgrade into better located or higher‑spec assets.
Perth CBD added 39,966sqm and West Perth 6,339sqm, showing Western Australia is gradually working through its long‑standing oversupply. In South Australia, Adelaide CBD absorbed 33,023sqm and trimmed vacancy to 15.5%, with the Adelaide Fringe contributing a further 4,649sqm. Canberra, underpinned by government and a growing private sector, added 16,923sqm despite new projects coming online.
Vanessa Rader (pictured), head of research at Ray White Group, says the sector still faces a long grind back to balance.
“The mathematics are sobering. At the current annual absorption rate of approximately 365,000 sqm nationally, and with total vacancy sitting around 4.36 million sqm, meaningful vacancy compression will require either a substantial acceleration in tenant demand or significant stock withdrawals,” Rader said.
She notes that the pipeline will eventually ease: “The positive development is that new supply will eventually taper as construction costs have reached levels where CBD development is economically unviable at current rents.”
Rader also cautions that the turnaround will not be quick. “The market has turned a corner from decline to recovery, but the recovery itself will be a gradual, multi-year process rather than a swift return to pre-pandemic conditions.”
For mortgage brokers, the office rebound is a mixed bag. National absorption is the strongest since 2018, but vacancy still sits near 15.9%, so banks remain cautious, particularly on secondary assets. Prime CBD towers in Brisbane, Sydney, Melbourne, Perth and Adelaide offer stronger stories than fringe corridors like St Kilda Road, which are losing tenants in the flight to quality.
Underwrite longer lease‑up periods, higher incentives and modest rent growth, and stress‑test coverage under higher interest rates. Many office loans will face tougher revaluations at refinance, so sensible gearing, liquidity buffers and alternative lender options are crucial.
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