Cost certainty in an uncertain market - What occupiers should lock in now
Sydney’s office market is in one of its most paradoxical phases in decades. Vacancy remains elevated - hovering between 13.7% and 13.8%, according to multiple Q3 and Q4 2025 reports - yet competition for the best spaces is intensifying, especially at the premium end. New supply has surged, but only temporarily; the pipeline thins dramatically until 2027, when the next wave of major, largely pre committed developments land. This creates a moment where occupiers appear to have leverage, but in reality, the window is narrower than it seems.
“Many organisations are misreading the market,” says LPC Director, Ken Lam. “Vacancy looks like a tenant’s dream, but true optionality - especially for high quality, connected, ESG aligned buildings - is shrinking. The conditions occupiers can secure today won’t be available in eighteen months.”
The Market is Dividing - Fast
Across the CBD, premium vacancy has tightened to around 9.8%, even as B grade and some A grade assets soften. This reflects a continued flight to quality, with tenants gravitating to better performing, amenity-rich, energy efficient buildings.
Landlords of older or less competitive assets are compensating with very aggressive incentives - often 40% or more - while premium landlords, confident in demand, are holding incentive levels in the mid 30% range, and in some precincts tightening them. Net effective rents for premium space have risen steadily, posting annual growth of about 7%, driven by resilient demand and decreasing availability.
Meanwhile, on paper, the city is flush with space. But that space is unevenly distributed across grades - and far from equal. New premium or refurbished stock released in 2025 helped inflate headline vacancy, yet much of the high quality space is already spoken for or limited in contiguous availability. And with no meaningful new supply arriving until 2027, the pressure will soon reverse.
As LPC Advisor, Ed Andrews, puts it, “Occupiers who think they can wait for better deals will find the opposite. Incentives at the top will contract, not expand, as quality space is absorbed and supply stalls.”
Why Cost Certainty Matters Right Now
For organisations locking in multi year commitments, the stakes are high. Occupancy cost isn’t just rent - it's incentives, fitout contributions, rent review structures, make good obligations, flexibility mechanisms, and exposure to future market cycles. All of these levers are shifting.
Construction and fitout cost inflation remains persistent, prompting landlords to raise face rents to offset rising project expenses. This is particularly visible in premium stock, where lower vacancy and increased demand give landlords confidence to firm their positions.
At the same time, leasing activity is concentrating in larger, high quality floorplates as corporates consolidate footprints - further tightening the premium market. CBRE data shows more than 120,000 sqm of enquiries in Q3 2025, the highest in years, and landlords have already begun moderating incentives for the most sought-after buildings.
“Cost certainty isn’t about getting the cheapest rent - it's about eliminating future surprises,” notes Gillian Heath, LPC Director. “The organisations doing this well are baking flexibility, downside protection, and landlord-funded improvements into their leases now, while leverage still exists.”
The Actions Occupiers Should Take Before the Window Closes
To futureproof commitments - commercially, operationally, and strategically - occupiers should focus on three immediate priorities:
- Lock in Today’s Incentives - Especially for Premium and A-Grade Buildings
Incentives in premium stock will not remain stable. With vacancy tightening and no new high-quality supply arriving in the near term, early commitments will deliver materially better terms than late ones. Today’s mid 30% incentive levels in premium assets will likely reduce as the pipeline contracts. - Capture Landlord Contributions Before Fitout Costs Climb Further
With construction and fitout costs escalating, landlords are already adjusting face rents to cover higher capital expenditures. Securing substantial contributions now offsets exposure to future cost volatility. - Prioritise Flexibility Over Footprint
Rights to expand, contract, sublease, or relocate are becoming central to long-term cost control - more so than negotiating marginal rent reductions. As demand consolidates into high-performing precincts, flexibility will be harder to obtain.
Chris Marrable, LPC Advisor and Head of Property Strategy, summarises it best:
“The lease you sign today needs to serve multiple business scenarios tomorrow. Anything less is a risk you don’t need to take in this market.”
Futureproof Today: The LPC Perspective
What’s happening in Sydney is not a simple tenant’s market or a landlord’s market. It is a fragmented market, and fragmentation creates risk for unprepared occupiers - and opportunity for well-advised ones.
The combination of high short-term vacancy, tightening premium supply, grade divergence, uneven incentive structures, and rising construction costs means occupiers have leverage only if they understand where and how to use it.
This is where LPC’s conflict free model is essential. Unlike landlord aligned advisory, LPC sits solely on the occupier’s side of the table - ensuring decisions are made on the basis of long-term business needs rather than real estate inventory.
“Futureproof Today isn’t a tagline - it’s a mindset,” says Julian Kurath, LPC Director.
“It’s the recognition that the commitments occupiers make this year will determine their agility, cost profile, and competitiveness through the rest of the decade.”
Authors: John Reed and Gillian Heath
Sources
• Knight Frank – Sydney CBD Office Market H2 2025 [bloxcommer...ial.com.au]
• CBRE – Sydney CBD Office Figures Q3 2025 [content.kn...tfrank.com]
• Cushman & Wakefield – Sydney MarketBeat Reports, Jan 2026
• LinkedIn / Niche Advisory – Sydney CBD Office Market Update Q4 2025 [cbre.com.au]
• Savills – Australian Office Briefing September 2025 [linkedin.com]
• JLL – Sydney APPD Market Report Q4 2025 [colliers.com.au]
• CBRE – Sydney CBD Office Figures Q4 2025 [propertyco...cil.com.au]
