According to Knight Frank, Sydney is entering a period of limited new office developments, with only three major CBD completions exceeding 25,000sq m expected by 2029, adding a total of 163,000sq m of office space.
Already 65 per cent of this new supply is pre-committed, leaving only 57,000sq m of new premium space available for lease until 2027, representing just 1 per cent of total market stock.
With no other developments currently slated for delivery in 2028-29, the supply pipeline is approaching historically low levels, creating a significant supply-demand imbalance for premium-grade stock.
Knight Frank forecasts that rents will continue to rise for premium assets in Sydney’s CBD office market, with an average expected rental growth of 5 per cent per year. Incentive levels are likely to shift downward compared to the wider market.
The impact of tight new supply will quickly filter through to higher rents for existing premium assets, eventually improving the outlook for A-grade assets as the CBD market transitions to a multi-speed recovery.
Knight Frank Associate Director of Research & Consulting, Marco Mascitelli, said that new development stock has consistently performed well in Sydney’s CBD office market, regardless of high overall vacancy rates.
“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,” Mr 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.”
The research shows a clear disparity between premium stock and the rest of the market.
Since 2020, premium-grade net absorption has totalled 279,858 square metres, while all other grades have experienced negative absorption levels.
Looking specifically at take-up levels for new developments, there has been over 376,000 square metres absorbed over the last five years, demonstrating the strength of demand at the top end of the market.
This strong take-up has occurred during a period when some corporations have chosen to reduce their overall office footprint, further emphasising the persistent flight to quality in the market.
Knight Frank Partner and National Head of Leasing, Andrea Roberts, warned that the top end of the Sydney CBD office market was tightening rapidly, advising occupiers to act quickly to secure the best space.
“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.
Ms Roberts said there was a degree of urgency for businesses planning their office needs.
“As a result of the looming supply shortfall, occupiers seeking premium space within the 2026 to 2028 window need to act swiftly to secure their preferred option.
“Delaying a decision could easily mean missing out on optimal floorplates, top amenities and the most desirable locations.”
