Why the CBD prime office crunch is a buying opportunity

This interview was filmed 25th May, 2026. 

Ask most retail investors whether commercial office is worth touching and you'll get a polite 'no'. Headline vacancy rates are at cyclical peaks, the rate environment has been tough, and work-from-home killed the sector… or so the story goes.

The data tells a more complicated story. Prime office space is in short supply, rents are rising, and tenants are upgrading. The market is bifurcating, and the gap between quality assets and everything else is widening fast.

Stuart Wilton, Co-Head of Unlisted Funds at Centuria Capital, sees it as the entry point. His firm's Sydney CBD Prime Office Fund is acquiring 50% stakes in two prime-grade towers - 680 George Street and 50 Goulburn Street - in Sydney's Midtown precinct, integrated within World Square and near the new Metro line.

In this interview, Wilton makes the case for why now is the right time to buy, what the vacancy numbers say about the sector, and why the Midtown precinct is mispriced by the broader market.

Vacancy is concentrated, not widespread

Sydney's office vacancy problem is real, but it's heavily concentrated. More than half of all empty CBD space sits within just 17% of buildings. Those are mostly older, lower-quality assets that tenants are actively leaving in favour of better space. Prime towers in strong locations are a different story entirely.

"The good, prime grade office towers like the ones we're acquiring in the Sydney CBD Office Fund have performed well," Wilton said.

Sydney CBD has had the strongest leasing demand of any Australian capital city over the past two years - 86,000 square metres of net new take-up annually, the highest level in over a decade.

Australia's population growth is part of what's driving it. "Population growth is still really strong in Australia," Wilton said. 

"That's going to drive demand for real estate and commercial real estate as well."

The supply pipeline is effectively frozen

It currently costs around $35,000 per square metre to build a new office tower in Sydney - Centuria is buying these assets at $13,400 per square metre.

That gap means very little new office space is coming to market anytime soon, and keeps leasing power with existing quality stock.

"To justify an economic rent to get an office building out of the ground at the moment, it's significantly higher than what the current market rents are," Wilton said. "So that's contributing to this restricted supply pipeline." 

Buying well below where comparable assets have traded

Centuria is acquiring these assets at a 7.5% cap rate - well above the 5.5% to 6% range at which comparable Sydney CBD buildings have recently changed hands. 

The reason for the gap is that most institutional investors returning to the office sector have focused their attention on the financial core of the CBD, overlooking what's happening in Midtown.

"You could say it's a bit of a first mover advantage," said Wilton.

"We think we're recognising some dynamics that are happening in the Midtown precinct that others aren't - and I think we're taking advantage of that and are well positioned to capitalise on it within this fund."

Despite the tough rate environment, values in Sydney CBD have actually been moving in the right direction. 

"We've seen some capital growth in most CBD markets. On average across the country, it's been 5-6 %, and at the upper end of that range in Sydney CBD."

The tenants, and where occupancy is heading

The two assets were 88% occupied at acquisition, but that number is already rising. A two-floor, 10-year lease to a state government tenant has been agreed, pushing occupancy to 93.4%, and negotiations are underway for close to four additional floors across two separate tenants.

"By the time we settle on the property, there's a reasonable chance that we could be in excess of 95% occupied and potentially full," Wilton said.

The existing tenant base skews defensive. 75% of income comes from government, multinational and ASX-listed tenants across 26 leases. The assets also sit above World Square, the second-largest retail precinct in the Sydney CBD, which draws around 24 million visitors a year.

That volume of foot traffic and the precinct's amenities make it an easier sell to prospective tenants, with 100 retailers and 45 food-and-beverage operators.

Since Centuria agreed terms on 680 George Street in February, more than 12,000 square metres of leasing has been executed or is being finalised at the building alone. 

"That's just a testament to the location and the asset itself," Wilton said.

The Metro effect

The Sydney Metro, extended into the CBD over the past two years, has materially improved access to the Midtown precinct. "The introduction of the Metro has been an absolute game changer for Midtown," Wilton said. "The leasing results within the precinct speak to that."

It is the kind of structural infrastructure shift that tends to reprice a precinct over time, and Centuria is betting it hasn't been fully recognised in valuations yet.

Going green and why it matters for the exit

Centuria plans to fully electrify both buildings, which creates a pathway to carbon-neutral certification. 

Government and multinational tenants increasingly have their own sustainability commitments to meet, which makes green-rated buildings easier to lease. It also makes the assets easier to sell when the fund winds up.

"That'll continue to help us with our leasing, but also some liquidity at the backend when we potentially go to sell the assets at the end of the investment life," Wilton said.

On rates

The fund's debt assumptions already factor in two more rate hikes, meaning additional tightening is largely priced in at entry.

"A lot of it's already priced in," Wilton said, "but that rental growth is expected to continue to be strong off the back of the strong demand metrics as well as the limited supply pipeline that's coming through."

The return case doesn't depend on rates falling. It depends on tenant demand holding up against a backdrop of almost no new supply, and right now, that's exactly what the data shows. 

The key variables from here are timing the exit well and whether the market catches on to Midtown before Centuria does.