Business Insights | Is Sydney’s ‘Spicy Core’ too hot to handle?

Sydney CBD’s office leasing market has proven its resilience. Occupier interest has remained consistent but focused. The demand has zeroed in on the best of the best: Premium, Core, and “bright and shiny” buildings that offer top-tier amenities, great outlook, ESG credentials, and future-proofed infrastructure.

But as the market evolves, so too does the definition of value itself.

The Spicy Core: premium space, premium price

The Sydney Core - what we’re calling the ‘Spicy Core’ - has reached record-breaking territory. Net face rents are now pushing beyond $2,400psm in some cases, and with net effective rents across the prime Core market at $955psm having reached an all-time high. This pricing reflects the scarcity of true premium space and the flight-to-quality trend that has dominated post-pandemic leasing.

But with spice, comes heat. And not every occupier is willing (or able) to pay the price.

The value gap: Midtown and Western Corridor step up

The gap between the Core and surrounding precincts is widening. Prime net effective rents in the Western Corridor now sit $436psm below those in the Core, while Midtown rents trail by $310psm. For occupiers, this delta is no longer just a discount, it’s a strategic opportunity.

We’re seeing a clear shift: tenants are beating the heat by exploring alternate locations that offer value without compromising on quality. As a result, the proportion of greater than 1,000sqm deals tracked in the Core for H1 has dropped to 31% compared to 46% for the same period in 2024.

Figure 1: Prime Net Effective Rents by Submarket

Western Corridor: The quiet achiever

The Western Corridor has quietly become one of the most dynamic sub-markets in the CBD. Strategic vacancy has emerged consistently over the past three years, and deals have been strong for occupiers for some time, but this year, it’s accelerating with net effective rents dropping a further 8% year-on-year.

Effective rents in the Western Corridor are now on par with metro markets like North Sydney and Surry Hills, making it a compelling alternative for businesses seeking a more accessible and amenity rich location for their people.

Through the first half of 2025 the Western Corridor was only one deal away from matching the Core for larger than 1,000sqm occupiers. And based on current levels of activity we predict that the Western Corridor will be the top performing submarket for the full year.

The window is narrowing

Let’s be honest, real estate agents will always say “now is the time to move.” But in this case, the data backs it up. The motivation for landlords to do big deals in the non-Core submarkets is real but it won’t last forever. As vacancy tightens and income starts to flow, face rent growth will return, and incentives will begin to taper. The window for securing favourable terms is closing.

Enough is enough when landlords draw the line

After years of write-downs and valuation pressure, landlords have drawn a line in the sand. Rents and incentives are both moving away from tenants wherever the demand will support it. The Core is showing 8% net effective rent growth over the last 12 months and 3% in Midtown. Given strong deal volumes in the Western Corridor, we also expect to see a return to growth there by the end of the year.

Final thoughts on a market in motion

Sydney’s office market is at a crossroads. The Core remains the most attractive sub-market for tenants, and the stage is set for further strong rental growth. As cost pressure bites and occupiers reassess their priorities, alternate precincts are stepping into the spotlight.

Whether you're a tenant looking for value or a landlord positioning for growth, one thing is clear, the market is moving. The question is: are you moving with it?