Australia’s office sector is showing renewed signs of recovery, even as new data reveals a modest rise in national vacancy rates. According to the latest figures from the Property Council of Australia, national office vacancy increased from 15.2% to 15.9% in the six months to January 2026—an uptick driven largely by the completion of projects initiated several years ago.

Property Council chief executive Mike Zorbas described the increase as a supply-led phenomenon rather than a weakening of demand. “What we’re seeing nationally is vacancy from projects that started three years ago and are largely pre-committed,” he said, noting that the current wave of completions represents the final phase of the cycle. Over the next five years, he added, a lack of new supply is expected to underpin a broader recovery in office markets.

New developments accounted for 1.2 percentage points of the increase in CBD vacancy, while future supply is forecast to fall well below historical norms. Over the next three years, CBD office completions are expected to average between 100,000 and 120,000 square meters per six-month period, compared to a long-term average of around 240,000 square meters. Perth and Canberra were the only capital cities to record falling vacancy during the period.

Market participants say headline vacancy figures mask improving fundamentals, particularly at the upper end of the market. Knight Frank national head of leasing Andrea Roberts said tenant demand remains firmly focused on high-quality assets offering strong wellness credentials, transport access, and food-and-beverage amenity. She also pointed to growing demand for landlord-provided “third spaces” to accommodate events and fluctuating occupancy patterns.

With limited new buildings in the pipeline, Roberts expects tightening conditions to translate into rental growth through 2026 and beyond. “Supply over the next five to six years is well below historical averages, and that scarcity will continue to put upward pressure on rents,” she said.

Supporting this view, CBRE head of office and capital markets research Tom Broderick reported that net absorption in prime office assets has reached its strongest level since 2017. “The tenant contractionary phase has come to an end,” he said, adding that the next five years are shaping up to be the lowest period of office supply since the late 1990s.

Taken together, the data suggests Australia’s office market is entering a new phase—one defined less by volume and more by quality, performance, and adaptability, as demand consolidates around well-located, amenity-rich buildings within a constrained supply environment.

Read more at The Urban Developer.