Commercial property finance
Office vacancy is at a 30-year high, and lenders have changed how they read an office building.
National office vacancy rose to 16.1% in the first half of 2026, the highest in three decades, with CBD markets at 14.9% and suburban markets at 18.9% (Property Council). A lender values office on its income, so a part-empty or short-lease building can be valued below its price. Offices still get funded when the income is secure and the buyer can show how the building holds up if a tenant leaves.
How high is office vacancy, and where?
The Property Council's first-half 2026 survey put national office vacancy at 16.1%, up from 15.8% six months earlier and the highest level in three decades (reported by realcommercial.com.au on 7 August 2026). CBD vacancy edged up from 14.8% to 14.9%, while suburban markets rose from 18.3% to 18.9% as tenants moved to better-grade buildings in the major cities.
Melbourne carries more of this than most. Property Council figures reported in June had Melbourne office vacancy at about 19% at the start of 2026, up from 3.2% in January 2020, and an August report still described it as the highest in the country. The same August report noted that Melbourne was the only city to record positive supply and demand growth in the six months to July, concentrated in A-grade stock.
Institutional owners are selling, mostly in Sydney.
Institutional owners are repositioning, and the sales are public. The table lists the main ones reported since July, most of them in Sydney, with approximate prices as reported.
| Seller | Asset | City | Approximate price |
|---|---|---|---|
| Mirvac | 380 St Kilda Road, sold July 2026 | Melbourne | $130 million |
| Investa fund | 1 Market Street, reported August 2026 | Sydney | $450 million |
| Dexus | Suburban offices at Parramatta and the north shore | Sydney | About $400 million (several sellers) |
| Cbus Property | 121 Castlereagh Street, buyer in talks | Sydney | $220 million |
| Commerz Real | 110 Goulburn Street, listed September 2026 | Sydney | About $270 million expected |
Reporting in August said landlords including Dexus, AEW, LaSalle and Marquette were offering buildings across the eastern seaboard, and that fund managers who bought before Covid had been waiting for a stronger recovery that rising rates and global uncertainty delayed. Buyers are also active, and they are choosing carefully: Mirvac's wholesale office fund was reported in July to be circling a stake in 171 Collins Street in Melbourne.
Capital is moving into prime office and away from the older, emptier stock.
The Melbourne sale shows the reset in values. Mirvac held 380 St Kilda Road at $163.4 million at the end of December and sold it for about $130 million, roughly 20% lower, after spending about $60 million on a refurbishment. The building was about 55% occupied at sale.
How does a lender view an office loan when vacancy is rising?
A lender lends against what the building can earn, so rising vacancy flows straight into the valuation. A valuer capitalises the net income, and capitalisation rates have moved: Melbourne office yields softened by 29 basis points over the year to 5.7% in the August report, which lowers the value a given rent supports. If a building is part empty or its leases are short, the figure that results can sit below the price a buyer has agreed. When that happens the lender lends a percentage of the lower number and the buyer funds the gap. The same logic sits behind what banks assess on any Melbourne commercial property loan, applied to an office market with 16.1% national vacancy.
Mirvac reported that Sydney CBD buildings over 15 years old were running at more than double the vacancy of its own portfolio, so older buildings are leasing far worse than newer ones. In my years in banking alongside credit teams, a well-let building near transport was always read differently from an older multi-tenanted building in a suburban business park, and that gap is wider now. Credit teams now ask more about building grade, lease term remaining and tenant mix, and as a broad guide office investment lending tends to sit around 60% to 65% LVR, with older or secondary buildings at the lower end or below.
Buildings with secure income are the ones that still get funded.
The buildings that get funded most readily have secure income. That usually means a longer weighted average lease expiry, a diverse or strong tenant base, a location near transport, a recent refurbishment and a realistic plan for any vacant floors. CBRE's first-quarter 2026 office report noted the lowest supply outlook over the next five years since the early 1990s, which supports well-located buildings that are already let.
An owner-occupier is in a different position. If your own business will occupy most of the building, the lender weighs your trading profit alongside the property, and the building's vacancy risk matters less to the loan. We cover how that assessment changes in our owner-occupier and investor comparison. If a lender declines office on the first pass, the reasons are usually fixable, and our piece on why banks decline commercial property loans sets them out.
Policy adds a Melbourne-specific variable, because the Victorian Government delayed its work-from-home laws until July 2027 and is returning up to 30,000 square metres of its own office space to the market this year and 100,000 by 2028, which CBRE said creates short-term vacancy risk. A lender will want to see that you have thought about it. If you are weighing an office purchase or a refinance, talk to us before you sign contracts, and our commercial property finance page covers the loan types.