Office Property in Australia 2026: Navigating the Bifurcation Between Prime and Secondary Assets

The Two-Speed Office Market

Australia’s office sector presents a paradox in 2026. National office vacancy rose to 15.9% in January 2026, up from 15.2% in mid-2025, yet certain CBD markets are recording strong returns. Melbourne’s overall office vacancy is around 19%, underlining how tough conditions remain in some CBDs, while Brisbane CBD office returned 10.8%, the strongest result of any office market nationally. This divergence is not a temporary anomaly—it is a structural feature of a market where quality and location determine outcomes.

The Supply Pipeline Is Thinning

A critical factor shaping the office market’s future is the sharp slowdown in new developments. Higher construction costs and tighter funding conditions have made new office projects increasingly unviable, and the pipeline of new supply is thinning across key CBDs. Cushman & Wakefield’s Australian Commercial Real Estate Outlook 2026 observes that “a sharp slowdown in new supply, alongside recovering occupier demand, will drive vacancy lower and support stronger effective rental growth through 2026–2028”. This means much of today’s elevated vacancy is already locked in—and over the next three to five years, tenants may find fewer new options, gradually returning bargaining power to owners of high-quality stock.

The Prime vs. Secondary Divide

The bifurcation between prime and secondary assets is the defining feature of the office market in 2026. Prime, well-located towers with strong ESG credentials and good transport links continue to attract tenants, while older, less efficient assets are falling further out of favour. As Tyran Collins, Capital Transactions Manager at The GPT Group, notes, “Investors are expected to remain selective, with a focus on high quality, premium or A-grade buildings in core locations such as Sydney’s CBD”. This selectivity is creating opportunities for well-capitalised investors who can acquire and reposition secondary assets, as well as for those holding premium stock in supply-constrained markets.

Market-by-Market Performance

Office performance varies dramatically by location. Brisbane CBD office returned 10.8% in the year to June 2026, with vacancy falling to 10.2% from 11.8% as the supply pipeline thins out. Sydney CBD returned 8.0%, with capital growth back to 2.7% and vacancy easing to 13.3%. Perth is showing the same pattern, with vacancy down to 15.4% from 16.9%, supported by the state’s broader economic strength. Melbourne CBD remains the outlier among the major markets, returning just 5.9% as it grapples with the largest 2026 office supply pipeline. CBRE forecasts net effective rent growth for Brisbane CBD of +7.3% and Sydney CBD of +6.6% for 2026, while Melbourne’s recovery is expected from 2027 onwards.

The Investment Case for Office

For investors, the office sector offers a contrarian opportunity in 2026. With valuations having reset and capitalisation rates stabilising, the asset class is more attractive than it has been in recent years. The key is selectivity: focusing on premium assets in supply-constrained markets, understanding the lease covenant strength, and positioning for the rental growth that will emerge as new supply dwindles. As the market enters a more stable phase, well-timed office investments could deliver strong risk-adjusted returns.