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Shifting tenant preferences, changing workplace dynamics, and a surge in upcoming lease expiries are positioned to reshape the commercial property outlook in Australia’s two largest capital cities.
Recent findings from Cushman & Wakefield have revealed that approximately 2 million square metres of office leases will expire across the Sydney and Melbourne CBDs between the years 2026 and 2028.
The firm’s Reshaping the City report investigated where office lease expiries are most concentrated in Sydney and Melbourne, and how factors such as building quality and vacancy risk can affect leasing activity within both CBDs’ various submarkets.
Cushman & Wakefield’s head of international research, Dr Dominic Brown, said that structural changes in the Sydney and Melbourne CBD markets brought a blend of challenges and opportunities for real estate stakeholders.
Brown said there has been a surge in demand for high-quality offices located in Sydney and Melbourne CBDs.
“What we’re really seeing is a ‘climb to the core’, where centrality, elevation and deeper building quality markers have an outsized impact on leasing decisions,” Brown said.
The firm’s report showed an upswing in demand for centrally located and higher-grade stock in Sydney and Melbourne CBDs, with buyers particularly preferring leases that offer spaces on upper building floors.
“For upcoming lease expiries, 40 per cent are in Sydney’s core, while in Melbourne, one-third fall between the prime Bourke and Collins St corridor,” Brown said.
Cushman & Wakefield’s findings also showed that increased return-to-office (RTO) mandates in Sydney and Melbourne have been fuelling leasing demand.
The firm’s report observed that 60 per cent of major tenants in Sydney and 40 per cent in Melbourne have implemented some form of “strict RTO mandate”, representing 800,000 square metres’ worth of demand for office spaces.
While historically, Sydney and Melbourne recorded around 10 square metres of prime office absorption for each additional office worker, data showed that the ratio has sharply declined since 2020 to 3 square metres for Sydney and just 0.5 square metres for Melbourne.
As a result of the increasing prevalence of RTO mandates, Cushman & Wakefield noted a distinct prospect that around 800,000 square metres of high-value tenant space will be expanded, renewed or relocated due to higher in-office attendance.
Brown said that the decisions that tenants make in the coming months will have a significant impact on office demand within the broader Sydney and Melbourne markets.
“This means that some submarkets, precincts and buildings will benefit as competition intensifies, while others will come under increasing pressure,” he said.
Ahead of the potential shift in the commercial real estate markets of Sydney and Melbourne, Brown said that commercial investors in both cities may need to adapt as demand changes over the coming months.
“For assets with more renewal risk, a shift from passive leasing to active capital investment and repositioning may be required,” Brown said.
“Where broader submarkets are impacted, there could be a need for precinctwide interventions to reinject vibrancy,” he concluded.
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