Newcastle’s CBD office market is under pressure as occupiers compete for premium workspace and a thin development pipeline squeezes future supply.
New analysis from Colliers forecasts A-grade office vacancy will almost halve from 15.4 per cent to below 9 per cent by January 2028, echoing a broader national trend of businesses trading up to higher-quality offices.
We spoke to Michael Chapman, Colliers Director Newcastle Investment Services, about the changing conditions in the Newcastle CBD office market.
Tenants Trading Up
Occupiers across the CBD are reassessing their office footprint, with demand concentrated on modern, centrally located buildings.
Colliers data shows 37 per cent of A-grade leasing deals since 2021 involved new businesses moving into the CBD, while another 36 per cent involved existing tenants upgrading into newer space.
Growth in professional, scientific and technical services, along with an expanding skilled workforce, is fuelling the trend.
Mr Chapman said businesses are placing more weight on workplace quality to compete for talent.
“Businesses are placing greater emphasis on workplace quality as they look to attract and retain talent in an increasingly competitive environment,” he said.
“We’re seeing occupiers prioritise modern office accommodation that provides better amenity, connectivity and a stronger workplace experience, highlighting the growing flight to quality across the market.”
Constrained Supply Persists
While demand continues to build, new office development remains limited.
Colliers’ analysis suggests this has created a two-speed A-grade market, with newer buildings leasing well while much of the remaining vacancy sits in older stock or sublease space.
Mr Chapman said feasibility remains the biggest hurdle.
“Elevated construction costs, higher financing costs and project feasibility constraints are limiting the delivery of new office supply,” he said.
“With demand continuing to strengthen and a constrained development pipeline, we expect availability of high-quality office space to remain tight over the medium term.”
Better Leasing Conditions
The squeeze is translating into stronger leasing conditions.
A-grade absorption has averaged about 7,000 square metres a year over the past five years. Face rents are climbing, and incentives are easing back, pushing net effective rents higher.
“Tenant demand is increasingly concentrated around well-located, high-quality office assets, with occupiers showing a willingness to prioritise quality and workplace experience,” Mr Chapman said.
“As the market continues to rebalance, improving demand fundamentals and limited new supply are expected to support rental growth, particularly for better-performing A-grade assets.”
Investment Outlook Improves
Newcastle's strengthening fundamentals are drawing investor attention as buyers look beyond Sydney.
With demand rising and supply tight, owners of quality assets stand to benefit from stronger leasing conditions and income growth.
“Newcastle’s office market is benefiting from a combination of population growth, infrastructure investment and a diversifying economy,” Mr Chapman said.
“As vacancy levels tighten and demand for quality accommodation continues to strengthen, well-located assets with strong tenant appeal are well-positioned to benefit from improving market conditions and long-term growth opportunities.”
