Demand for office space is picking up, though tenants are getting fussier. Which precincts will win over businesses and investors – traditional CBDs or their adjacent hubs?
The office sector has been through the wringer. The pandemic sent workers home just as a glut of gleaming new stock hit our CBDs, leaving city landlords scrambling.
Since then, the ‘flight to quality’ has been well-documented, and CBDs may no longer offer a balance of price and amenity for some businesses according to REA senior economist Anne Flaherty.
“We’re recovering from a pretty unusual period in history, where demand for office space decreased overnight while new supply to our capital cities surged,” she said.
Sydney Metro West’s Burwood North precinct will have thousands of new homes and jobs by 2032, building up the inner west city as a major transport hub. Picture: Supplied
While Ray White research found office absorption rates are at their strongest levels since 2018, supply in the CBDs still outstrips demand.
National net absorption hit 365,883 sqm in the 12 months to January 2026, but 411,561 sqm came online, pushing total vacancy to 15.9% from 15.1% just six months prior, which “will take years to absorb” according to Ray White’s research team.
To draw people back, businesses have been chasing top-shelf spaces with sleek fitouts, wellness centres, cafes and end-of-trip facilities – and finding far better value on the city fringe. Areas like Parramatta in Sydney and Cremorne in Melbourne are pulling tenants from the traditional city core.
So what’s next for our CBDs? Are they fading into ghost towns, or simply evolving as energy and investment shift to the edge?
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Pros of CBD-adjacent hubs
Ms Flaherty said when new office supply is absorbed over the next decade, fringe business districts should perform quite well.
“While CBDs are packed with A-grade towers, fringe suburbs can offer newer, high-quality spaces at lower rents. If a business can stay near the city but pay less, that’s really attractive,” she said.
She also said with Sydney and Melbourne spreading further out, it makes sense for jobs to follow people, provided the precincts are well-accessed by public transport.
REA Group senior economist Anne Flaherty.
Western Sydney’s Parramatta is a prime example, said Peter Vines, managing director of Ray White Commercial Western Sydney.
“For A-grade in the city, you might pay $1,500 per metre; in Parramatta, $650 — plus you can secure generous incentives,” she said.
The new light rail and metro links are only boosting Parramatta’s appeal, while fellow office precinct Chatswood is now just eight minutes from Sydney’s CBD.
But price and transport isn’t everything; good amenities are essential.
“People want to feel excited to go to work so you need great cafes, childcare, gyms, after-hours spots — and you don’t need to go into the city for that anymore, Mr Vines said.
Ray White Commercial’s Peter Vines. Picture: Supplied
Data from merchant terminal provider Square supports the shift: 40% of Australians now visit the CBD less than once a month, and almost one in five avoid it altogether.
In Sydney, Surry Hills on the CBD fringe is booming, with tech firms drawn to its relaxed, creative energy.
“The area feels alternative and relaxed, and the places have character; not everybody wants to be in a skyscraper in the city,” Mr Vines said.
In Melbourne, Cremorne’s dense cluster of startups has earned it the nickname ‘Silicon Yarra’.
“Being among similar industries is a real advantage,” Ms Flaherty said. “And easier parking than CBDs can make a big difference for staff.”
Knight Frank chief economist Ben Burston. Picture: Supplied
Pros of the traditional CBD
While moving out of the CBD can make life easier for some employees, it can make it harder for others, Ms Flaherty said.
“Some fringe hubs are close to where executives live – Cremorne, for example, is easy from Toorak or South Yarra. But for staff on the opposite side of the city, that can mean a long commute via the CBD.
“Traditional city centres tend to be convenient for the majority, so moving elsewhere can shrink your talent pool.”
And while the outskirts may offer cheaper rent, that’s not universal, she added.
“In Melbourne’s CBD, around 19% of office space sits vacant at the moment, so tenants can negotiate attractive lease terms. Sydney’s vacancy rate is also high, giving tenants the power.”
Knight Frank chief economist Ben Burston agrees the CBD is far from finished. He said strong demand for prime-grade space and a limited supply pipeline are helping city centres lead the national recovery.
Melbourne office yields have recorded the largest correction of any capital city. Picture: Jason Edwards
Knight Frank data found net rents have climbed 11% year-on-year in Brisbane and Adelaide, 7% in Sydney and 4% in Melbourne.
“Sydney’s CBD has been a bellwether for the health of the wider office market, and to date the recovery has been strongest in the core CBD precinct. Melbourne has witnessed a similar trend.”
Investment opportunities
CBRE has dubbed 2026 ‘the year of the office for investors’, thanks to limited new supply, rising rents and yields that appear to have bottomed – with some even starting to tighten.
In Parramatta, Ray White Commercial reports a vacancy rate of 22.1%, largely due to newly refurbished stock returning to the market, yet tenant demand remains solid. Mr Vines said prime yields in western Sydney held firm at 8% during 2025.
Meanwhile, PropTrack’s yields report for Q1 2026 shows office yields eased over the past year to 5.3% in Sydney and 5.6% in Melbourne, while rising in Adelaide (5.6%), Perth (5.8%) and Brisbane (7.1%).
Knight Frank’s 2026 investment hotspots include North Sydney, Cremorne, Brisbane CBD (Top Tier), and the Adelaide and Perth CBDs.
The City of Parramatta is the latest council to announce the trial of a special entertainment precinct. Picture: Parramatta Council
Mr Burston said growth was more subdued outside the major CBDs where high vacancy weighed on performance, though he expects the recovery to gradually spread.
“We expect continued growth in Adelaide and Brisbane, while we expect Sydney and Melbourne to enter a second phase as growth extends beyond the core precincts,” he said.
“Adjacent markets, such as Sydney’s CBD Midtown and North Sydney and the Western Core in Melbourne, should see improving growth as they join the core in starting to benefit from a thinning supply pipeline.”
For investors weighing CBDs versus fringe hubs, Ms Flaherty said it’s about priorities.
“If you want a blue chip asset, the CBD makes sense – yields are a bit lower, but you may attract larger businesses,” she said.
“If you’re looking for higher returns and a lower price point, fringe markets make sense.”