Are CBD offices the hottest commercial investment of 2026?

Major CBD office rental markets have boomed over the last year, particularly in the three largest capitals, driven by a tight supply pipeline and demand for high-quality assets.

New data showed that office markets across major Australian CBDs have recorded robust growth in the first quarter of this year, with the three largest capitals leading the nation.

Knight Frank’s Australian Office Indicators Q1 2026 report showed Brisbane CBD had the largest growth over the 12 months to the end of March, with a 11.7 per cent net effective rental increase.

Sydney and Melbourne saw their fastest post-pandemic growth in net effective rents, recording increases of 10.2 per cent and 6.8 per cent, respectively, over the 12 months to the end of March.

Contrastingly, rental growth in suburban markets has been subdued, while tenant demand has been concentrated in the CBDs.

Out of the suburban market, Melbourne’s Southbank performed the best annually, recording year-on-year growth of 2.7 per cent.

Knight Frank Senior Economist, Research & Consulting, Alistair Read, said the strong growth was driven by demand for premium, well-located office assets and a tightly constrained supply pipeline

“Occupier demand continues to be heavily concentrated in the most desirable CBD precincts and the highest-quality buildings, accelerating a sharp divergence between core and non-core markets,” he said.

He noted in Sydney’s Core precinct and Melbourne’s Eastern Core, net effective rents rose 14.3 per cent and 16.1 per cent over the past year, vastly outperforming the rest-of-CBD precincts.

As a result, he said core CBD rents were 54 per cent higher than non-core locations in Sydney, and 93 per cent higher in Melbourne, showing the growing premium on amenity, accessibility and workplace quality.

“Rental growth in suburban markets remains subdued, with tenant demand largely skewed to the CBDs. Of the suburban markets, Southbank in Melbourne has performed relatively well, with annual net effective rental growth of 2.7 per cent,” he said.

A separate report, Asia-Pacific (APAC) Q1 2026 Office Highlights, also showed strong rises in prime office rents in Australia and India, which were leading the recovery across APAC, with prime net face rents rising by 0.8 per cent in Q1.

Annually, prime net face rent growth in Sydney and Brisbane were among the strongest rates within APAC, at 8.6 per cent and 8.2 per cent respectively, beaten only by Bengaluru and Tokyo.

Knight Frank said the report showed that APAC’s prime office markets sustained their recovery momentum in Q1, despite the Middle East conflict sparking geopolitical uncertainty.

According to the data 18 of 24 monitored cities reported stale or increasing rents quarter-on-quarter, up from 17 in Q4 2025.

Read said sustained demand and declining levels of new development will help ongoing prime rental growth and lower vacancy rates over the medium term, particularly for quality assets.

He said the conflict in the Middle East and higher interest rates had fuelled investor uncertainty in 2026, but supply constraints would continue fuelling growth, and the trajectory for interest rates was pointing lower in 2027 to 2028.

“Economic rents remain well above expected market rents, making the construction of new office towers largely unviable, and concentrating tenant demand into existing buildings,” he concluded.