Sydney CBD’s commercial leasing market continues its recovery, with rising tenant demand for high-quality fitted out offices in core locations amid reduced availability of Premium space, according to leading real estate agency Savills Australia’s recently released ‘Full Floors Report.’ 

A range of factors are contributing to the increased appetite for Premium office space according to Savills - including the ‘flight to quality,’ sustained tight labour market and the ‘Metro Effect,’ with enhanced connectivity unlocked by improved public transport infrastructure with the recently expanded Sydney Metro.

Interestingly, Savills says CBD core availability is declining in response to tenants’ ‘flight to location,’ while availability is on the rise in Midtown and the Western Corridor. However, Savills cautions that contiguous floor options remain limited across the board – particularly for large space requirements over 10,000 square metres that are available now and over the next 24 months.  There is however, a substantial increase in 10,000 square metre options becoming available early 2027 and into 2028.

Diverging availability across precincts

Savills’ Full Floors Report is based on an exclusive dataset that monitors over 3.9 million square metres of Prime Grade office space in Sydney CBD. The agency has tracked this data for some 20 years, revealing current and future leasing availability across Premium and A Grade buildings on a floor-by-floor basis. 

“The availability of Premium grade contiguous floor space in Sydney’s CBD reflects the trend for tenants to upgrade workspace in a bid for talent and to enhance their ESG credentials,” said Chris Naughtin, National Director Capital Markets Research at Savills Australia and New Zealand.

The maximum number of available contiguous Premium floors in Sydney CBD Core has decreased to just five, allowing up to 9,500 square metres of contiguous space in just one building, according to the Report. For smaller mandates for contiguous space of 2,500 square metres and above, there are slightly more Premium building options, with five available in the Core. 

Premium availability declining while available A grade space increases

Premium Space Tightens Amid Rising Tenant Movement   

Savills Full Floors Report reveals the continued impact of the “flight to quality” and “flight to location” trends – with an increasing take-up of Premium Grade space over A Grade.

The data shows the amount of Premium office space available now or within the next 12 months has declined by 17.8% over the year to August 2024. Conversely, available A grade space has increased by 9.4% over the same period. 

Savills say Sydney CBD’s Premium office market remains tightly held, with availability at 3.4% of total prime NLA in August, 2024 - down from 4.2% a year ago, and considerably lower than the availability of A Grade space, sitting at 8.7%.

The on-going ‘flight to location’ trend has catalysed declining availability in the CBD core by 9.3% to 7.4% of total prime NLA, down from 8.5% a year ago.  Similarly, the Walsh Bay and Southern CBD precincts have also seen available space tighten in the last year.

On the flip side, Savills’ Report shows increasing availability in other precincts within the Sydney CBD, with Midtown and the Western Corridor increasing by 13.0% and 10.2% respectively compared to 2023. Full floor availability is also materially higher in Midtown at 18.1%, and in the Western Corridor at 16.7%.

“The squeeze is on Premium Space in the Sydney CBD, with a distinct lack of full floor space in the CBD core. The contrast between the core and other pockets of the CBD is widening however, as tenants leave Midtown and The Western Corridor in favour of core locations. The Sydney Metro is the wildcard though, and we are yet to see its full impact on the office market,” Naughtin said.

Premium office floors in the CBD core are down by 16% compared to 2023 – yet up by 13% in Midtown for the same period according to the Report.

Prime rents rising along with incentives

Fitout and Remain High on Tenant Wishlist 

According to Savills Full Floors Report, a clear trend toward pre-fitted out office space has emerged with 77% of tenants now seeking this – a significant increase from just 45% in 2022. 

Savills leasing data also reveals that of the top 15 recent leasing transactions in 2024, the three most popular reasons for tenant relocation were upgrading fit-out (26%), favourable market conditions (22%) and upgrading to a higher grade (20%). These were closely followed by location factors (12%) and upsizing (12%), with only 6% indicating they were downsizing. 

Further, tenant preference for pre-fitted out space is also partly driving face rental growth, with landlords increasing face rents to cover higher incentives. But Savills says that while face rental growth remains robust, higher incentives translate to a more modest growth in effective rents.

“Tightened availability across all precincts in the CBD has contributed to strong face rental growth – especially at the top end of the market, with tenants prepared to pay higher rentals for premium, sustainable offices,” said Naughtin.

Tenants prefer pre-fitted office space

The Metro Effect: Enhanced Connectivity Fuels Office Demand

The completion of the Sydney Metro extension has enhanced connectivity in the CBD, dramatically reducing commute times to precincts within the city. According to Savills, the impacts of the ‘Metro Effect’ are already being seen on Sydney’s office market.

The Barangaroo stop has unlocked convenient access to the city’s north-west, connecting it to Martin Place in two minutes, North Sydney in three minutes and Chatswood in under 10 minutes.

Sydney’s CBD has been further activated via rising public transport activity, with Transport NSW data reflecting an increase in train trips by 5% in YTD (August), representing around 80% of 2019 levels. 

“We are already seeing the positive impacts of the Sydney Metro extension in the CBD. The CBD core continues to attract and retain quality tenants with large mandates, such as the ASX’s recent move to 39 Martin Place,” said Tom Mott, National Head of Office Leasing at Savills.

According to the Savills Full Floors Report, occupancy within the Core has reached 92.6%, up from 91.5% a year ago. But Savills says Midtown and the Western Corridor paint a different picture, with available prime space increasing over the past year. These precincts now have the lowest occupancy rates at 81.9% and 83.3% respectively. 

“While the city’s Western precinct has traditionally struggled to attract and retain tenants, driven by a lack of fitted-out space and less favourable location, we could yet see it benefit from the “Metro Effect” in coming months,” said Mott.

Upgrading space and fit-out driving tenant moves