Herron Todd White's mid-year review finds a widening gulf between prime and secondary office stock, with adaptive reuse gaining ground across multiple capital cities.
A sharp divide between high-quality and older office stock is defining Australia's commercial property landscape in mid-2026, according to Herron Todd White's (HTW) July Month in Review report.
Elevated construction and financing costs are suppressing new development activity nationwide, pushing landlords toward refurbishment and repositioning rather than ground-up delivery.
Across the country, tenant demand is concentrating on premium and A-grade buildings that offer modern fitouts, strong environmental credentials and high-quality amenities. Older secondary stock is bearing the brunt of the shift, with vacancy rates climbing and landlords offering incentives of up to 50% to retain or attract occupiers.
At the same time, the pipeline of new office supply is thinning. High labour and materials costs have made ground-up development financially unviable in most markets, and developers increasingly require substantial pre-commitments before breaking ground. Where new towers are not feasible, owners of underperforming secondary buildings are turning to adaptive reuse — converting office stock into residential, short-stay or mixed-use projects — a trend visible from Parramatta to Darwin.
According to the HTW report, Sydney's CBD continues to attract premium-grade development, with pre-commitments securing much of the incoming supply. In Parramatta, vacancy reached 22.1% in January 2026 — up from 20% in July 2025 — halting new development entirely. Owners are converting secondary stock to residential and mixed-use projects.
In Melbourne, premium-grade net effective rents rose 10.1% year-on-year to $500 per square metre per annum in Q1 2026, with incentives at 47%. Secondary assets averaged $307 per sq m with incentives near 50%. Overall CBD vacancy sits at 19%. Worker attendance exceeded 65% in Q1 2026 — the first time since 2020 — and is expected to rise further as employers enforce mandatory in-office days.
Meanwhile, Brisbane is outperforming most capital cities, with strong tenant demand for premium and A-grade space supported by population growth, infrastructure investment and the lead-up to the 2032 Olympic Games.
The Gold Coast's overall vacancy rate sat at 7.7% as at January 2026, with A-grade vacancy below 3%. On the Sunshine Coast, total office vacancy has tightened to 3.4%, with A-grade space near 1%. New supply is negligible in both markets given feasibility constraints.
The Newcastle and Central Coast markets stabilised through 2025 and into 2026, driven by return-to-office mandates across public sector and corporate occupiers. A-grade development at 711 Hunter Street in Newcastle's West End — pivoted from a residential tower to an office project — was secured via a pre-commitment from NGM Group. In Wollongong, A-grade net rents average $500 per square metre, roughly 65% cheaper than the Sydney CBD.
In Adelaide, tenants are moving away from secondary stock toward modern, energy-efficient buildings. Similarly, demand for C- and D-grade office space in Darwin's CBD is effectively non-existent, while A-grade space commands up to $1,000 per square metre at the Charles Darwin Centre.
In Perth, total CBD vacancy stands at 16.9% (prime: 15.6%; secondary: 19.2%). Capital values and net face rents have edged higher across recent quarters. Small to medium businesses are increasingly buying strata offices rather than leasing, with demand concentrated in West Perth, Leederville, Subiaco and East Perth.
"Tenants are flocking straight to premium and A-grade buildings, looking for great workplace perks and strong environmental credentials," said Greg Mullins (pictured right), commercial director at Herron Todd White.
"Australia's office sector isn't moving in one predictable pattern anymore; it's a localised battle against high construction costs and the potential requirement to refurbish or reposition ageing office buildings."
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