Australian office market shows signs of recovery.

The Australian office market is showing encouraging signs of recovery in 2025, with positive space absorption and renewed investor interest, particularly from offshore capital. Ray White Group, Head of Research, Vanessa Rader said the market is experiencing a shift in sentiment across Australia's major CBD markets, though challenges remain.  

"The Australian office market is showing encouraging signs of recovery in 2025, with several key indicators pointing towards a more positive trajectory after years of uncertainty," Ms Rader said. "Most notably, some markets are experiencing a stronger return-to-office movement that is gradually reshaping occupier demands, while also attracting renewed investor interest."

Ms Rader said that workplace preferences are steadily moving back to physical offices, though in a transformed way that balances employee flexibility with business requirements. "Companies are reimagining their workspaces to serve as destinations that draw employees in through amenities such as end-of-trip, wellness areas as well as collaborative zones, and technology-enabled environments," she said. "This quality-focused approach is driving demand for premium and A-grade offices that can deliver exceptional workplace experiences and amenity."

According to Ms Rader, the slowdown in the development pipeline across major Australian office markets is creating strong conditions for the absorption of existing space. "The latest PCA office market report recorded positive take up for both CBD and non-CBD markets totalling 118,756sqm for the 12 months to January 2025, the first time exceeding 100,000sqm in three years," she said. "With fewer new projects underway the market is gradually working through supply that has accumulated over the last few years."

She said that the strongest recovery signs are emerging in prime locations within CBDs and select suburban hubs with superior amenities and transport connectivity, while secondary locations and older assets continue to face challenges. Despite positive indicators, Ms Rader said that significant economic challenges may slow the pace of recovery. "Global economic volatility, persistent inflation concerns, political uncertainty, and escalating geopolitical tensions are weighing on business confidence, resulting in many occupiers adopting a cautious approach to their real estate decisions," she said.

This caution is manifesting in shorter lease terms and more gradual expansions, with many businesses choosing to "make do" with their current footprint. "This widespread 'hold' pattern is creating a more drawn-out recovery trajectory than initially anticipated, with many businesses signalling they may maintain this conservative stance well into 2026 given the uncertain outlook," Ms Rader said.

Australia's office market is benefiting from growing foreign investment interest as global corporations seek stability amid international uncertainty. "Australia's relatively strong economic fundamentals, political stability, and strategic position in the Asia-Pacific region make it an attractive destination for capital given its 'safe haven' status," Ms Rader said. "The Australian dollar's current valuation is creating an attractive entry point for international capital, while yields remain notably higher than those seen in the past few years, offering a compelling value proposition."

She said this trend has resulted in increased CBD investment activity this year, particularly from North American and Asian investors. "This yield premium, combined with Australia's reputation as a secure investment destination, has proven particularly enticing for institutional investors from North America in particular Canada and Asian markets, notably Japan," she said.

Looking ahead, Ms Rader expects the recovery to continue. "The Australian office market appears to be emerging from its trough, with the worst likely behind us, however, it would be premature to expect a rapid recovery," she said. "While the fundamentals support a cautiously optimistic longer-term outlook, the immediate path forward will likely be more gradual improvements through 2025 and into 2026."