According to Cushman & Wakefield’s “Reshaping the City” report, approximately 2 million square metres of office leases will expire across Sydney and Melbourne CBDs between 2026 and 2028, creating a big test for the commercial property market.
The report reveals a clear preference for centrally located, higher-grade stock, particularly space on upper building floors.
In Sydney, 45 per cent of prime office space is in the core, yet it accounts for only 36 per cent of total CBD vacancy, with Melbourne showing similar trends.
For the upcoming lease expiries, 40 per cent are concentrated in Sydney’s core, while in Melbourne, one-third fall between the prime Bourke and Collins Street corridor.
Cushman & Wakefield has developed a Building Quality Index (BQI) to better assess vacancy risk beyond traditional grading systems.
The research shows buildings with lower BQI scores correlate with higher vacancies.
In Melbourne, buildings in the bottom BQI quartile account for 27 per cent of upcoming lease expiries, all on lower-rise floors.
Sydney shows 19 per cent of upcoming lease expiries in bottom-quartile buildings, while 40 per cent are in top-quartile buildings mostly in core locations.
Dr Dominic Brown, Cushman & Wakefield’s Head of International Research, describes the trend as more complex than a simple “flight to quality.”
“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,” Dr Brown said.
Return-to-office (RTO) mandates are emerging as another significant factor influencing leasing demand.
The top 250 tenants by office footprint in Sydney and Melbourne CBDs collectively occupy a third of all office space and half of prime-grade space.
In Sydney, 60 per cent of these major tenants have implemented some form of strict RTO mandate, representing 1.1 million square metres of space, and 40 per cent in Melbourne, corresponding to 800,000 square metres.
Financial and professional services, along with government sectors, are leading the implementation of these RTO policies in both cities.
The impact of changing work patterns is evident in office absorption rates.
Historically, Sydney and Melbourne saw around 10 square metres of prime office absorption for each additional office worker.
Since 2020, that ratio has sharply declined to 3 square metres for Sydney and just 0.5 square metres for Melbourne.
With financial services representing around a third of upcoming lease expiries and legal firms an additional 7 per cent, approximately 800,000 square metres of high-value tenant space will be expanded, renewed, or relocated due to higher in-office attendance requirements.
Dr Brown said that the coming wave of lease expiries will create winners and losers in the market.
“This means that some sub-markets, precincts and buildings will benefit as competition intensifies, while others will come under increasing pressure,” he said.
“For assets with more renewal risk, a shift from passive leasing to active capital investment and repositioning may be required.
“Where broader sub-markets are impacted, there could be a need for precinct-wide interventions to reinject vibrancy.”
