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Sydney’s CBD office market is set for a rebound, with limited premium office supply expected to boost rents amid rising demand.
The limited availability of newly developed premium office space in Sydney is expected to fuel rental growth, according to a new report.
According to Knight Frank’s report, titled Dwindling new supply to drive rents, there will only be three major new CBD completions of more than 25,000 square metre by 2029, adding a total of 163,000sq m of office space in the city.
“Already 65 per cent of that new supply is pre-committed, leaving only 57,000sq m of new premium space – or 1 per cent of total market stock – available for lease until 2027,” the firm said.
Knight Frank said that with no other developments currently scheduled for delivery in 2028–29, the supply pipeline is nearing “historically low levels”.
As a result, a significant imbalance between supply and demand for new premium-grade stock has been forecast.
With premium supply falling short of strong demand, Knight Frank said landlords will gain the upper hand in lease negotiations, driving rental growth for Sydney’s CBD office market.
The firm estimates an average expected rental growth of 5 per cent per year for the premium assets.
“Incentive levels are likely to shift down to be lower than in the wider market,” Knight Frank added.
“The impact of tight new supply will quickly filter through to higher rents for existing premium assets and then improve the outlook for A-grade assets as the CBD market transitions to a multi-speed recovery.”
According to Marco Mascitelli, Knight Frank associate director, research and consulting, new development stock has historically performed well in Sydney’s CBD office market, despite the market’s high overall vacancy rate, which stood at 13.7 per cent as of July 2025.
“Since 2018, there has been an average pre-practical completion commitment rate of 87 per cent across all new developments, which have totalled 481,000 across 13 schemes,” Mascitelli said.
“Over the past 18 months, 170,000 square metres of newly developed premium grade office space has been delivered across three metro over station developments, and the recently completed comprehensive refurbishment of 33 Alfred Street.
“All have been successfully leased, achieving an average commitment rate of 90 per cent across the four assets.”
He said the strength of demand for new premium developments is highlighted by the fact that over 376,000 square metres have been absorbed over the last five years.
“This strong take-up of new stock has come during a period when some corporates have chosen to contract their overall occupational footprint, and their experience bears testament to a persistent flight to quality.”
According to Knight Frank partner, national head of leasing Andrea Roberts, occupiers need to act quickly to secure space as premium stock in the Sydney CBD office market quickly tightens.
“Tenants continue to prioritise centrally located assets with market-leading amenity, and in time this will expose a supply shortfall at the top end of market which will drive rapid rental growth,” she said.
She said that due to the projected supply shortfall, occupiers seeking premium space between 2026 and 2028 need to act swiftly.
“Delaying a decision could easily mean missing out on optimal floor plates, top amenities and the most desirable locations,” Roberts added.
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