Guess which city was the outperformer in Australia’s office market in Q4 2024

It recorded the strongest net absorption at 16,300sqm.

According to a recent report from Dexus Research, the Australian office sector is expected to improve in 2025, with demand increasing, most notably in Sydney. Much of the uncertainty around hybrid working seems to be behind us and the vacancy cycle at its peak. However, signals are still mixed from market to market.

Here’s more from Dexus Research:

Sydney CBD had its second consecutive quarter of positive net absorption at 9,300sqm in Q4 2024, taking total demand for the year to 86,400sqm. Prime incentives fell to 34.3% and net effective rents grew 4.0% over the year. Brisbane CBD is the standout performer with the strongest net absorption of all the markets at 16,300sqm in Q4 2024. Brisbane has the lowest vacancy among the CBDs at 9.8% and saw strong net effective rent growth of 11.9% in the year.

Meanwhile, Perth CBD had a mildly weak quarter with net absorption of negative 2,300sqm, with vacancy increasing to 15.8%. Melbourne CBD is lagging the other CBD markets with soft demand, no change in the vacancy rate at 19.8%, and a 3.2% fall in net effective rents in Q4 2024.

Australian office tenants across the market are engaged in both a flight to quality (high quality assets) and a flight to value (affordable space). Decision making continues to lack urgency. Sub-500sqm requirements are still the most active and most of these tenants are seeking fitted out space.

The supply pipeline has significantly contracted, with forecast commencements for FY25-27 down 32% compared to the five-year average. Supply is being deferred due to both weak market conditions and high construction costs. New supply requires rents higher than the current market to support new feasibilities. This deferral of supply which will help to protect existing stock from oversupply and support rent growth through the cycle.

In addition the gap between market rent and the economic rent for a new build, which in Sydney is estimated to be in the order of 20%, implies a growth phase in market rents as the catch-up occurs.