Key drivers of Sydney CBD’s Q2 office absorption revealed

Net absorption reached over 23,500sqm during the quarter.

In a report, Dexus Research revealed that tenant movement following the completion of major refurbishments at 33 Alfred Street, 279 Clarence Street, and the office component of 121 Castlereagh Street accounted for nearly half of Q2 2025’s net absorption (+23,546 sqm), with the remainder driven by SME activity.

“The flight to quality theme continues to shape SME relocations, with well-fitted assets in core locations offering views remaining highly attractive.”

Here’s more from Dexus Research:

While secondary vacancy rose from 13.8% to 15.3%, total market vacancy edged up just 0.3ppts to 15.6%, offset by a decline in prime vacancy. Prime grade net effective rents continued to recover, rising by 1.0% over the quarter, while elevated incentives in secondary stock dragged net effective rents lower. Capital values also recorded similar growth for prime assets, supported by stable cap rates at 6.3%.

North Sydney

North Sydney recorded positive tenant demand in Q2 2025, driven by relocations such as Icon Construction’s move from the city fringe and McGrath Foundation’s transition from coworking to a direct lease. Net absorption reached nearly +6,500 sqm, reducing overall vacancy to 20.5%, with declines observed across both prime and secondary grades.

Tenant movement was largely fuelled by heightened competition among major landlords offering brand-new spec fitouts and elevated incentives, which rose to 40.9% for prime and 41.3% for secondary assets. The remainder of financial metrics remained relatively stable over the quarter.

Parramatta

Parramatta recorded strong net absorption (+9,760 sqm) in Q2 2025 across all grades. While the precinct remains a key back office hub for financial and accounting firms, recent months have seen growing demand from industrial tenants in Western Sydney shifting from warehouse based offices to dedicated commercial space, often selecting Parramatta for its proximity to established industrial estates.

As a result, enquiry profiles have diversified and are expected to contribute to net demand once deals are finalised. Flight to quality continues to drive tenant preferences, with increasing demand for spec fitouts and enhanced amenities. Prime grade assets recorded healthy face rental growth, which has translated into capital value uplift, supported by stable cap rates.