It is expected this demand will focus on the small to medium-sized office blocks as the city is now dominated by more, smaller companies as the larger businesses head to the new developments such as Barangaroo, where they can get slabs of floors at good rents.

JLL agents said office withdrawals in the Sydney CBD will ramp up competition in the sub-500 square metre leasing space over the next two years as displaced tenants seek new premises in a competitive market.

This competitiveness is reflected in A Grade vacancy (currently 6.6 per cent) being well below the 10-year average, and B Grade vacancy (currently 7.4 per cent) being at a 14-year low.

These withdrawals include both residential conversion stock as well as the redevelopment of existing office buildings. In addition, there is about 63,000sqm across seven buildings that will be withdrawn as a result of the NSW government compulsorily acquiring buildings for the Sydney Metro City and Southwest development.

Will Hamilton, manager office leasing at JLL, said while Sydney has a number of new developments completing in 2016 (333 George Street, 200 George Street, One Wharf Lane and International Towers Sydney – T2 and T3), the development pipeline falls sharply over 2017 and 2018.

"This will also exert further downward pressure on leasing incentives, which have been at the highest level since the early 1990s over the past two years," Mr Hamilton said.

JLL office leasing executive Ben Turner said tenants in buildings earmarked for redevelopment or withdrawal may find themselves with limited options if they wait until they receive their relocation notice to start the search for new premises.

The iconic MLC Centre, once the tallest in Sydney, has been one of the beneficiaries of this trend and now sits at 96 per cent occupancy.

It is also embracing the demand for retail and end-of-trip facilities, which are now must-haves for city dwellers and workers.

Co-owners GPT and the Queensland Investment Corp (QIC) have significantly upgraded the property, which holds a prime position in Martin Place, itself   being redeveloped into a piazza precinct to cater for the wide range of tenants.

Over the course of 2015, agreements have been reached with new tenants over four full floors and multiple suites, including to Magellan Asset Management, SMS Consulting Group, Milford Australia, Legacy Property Group and Pym's Technology Lawyers.

The increase in occupancy coincides with the completion of the MLC Centre's first stage of redevelopment, including a new food court, premier end-of-trip facilities and the arrival of a high-end supermarket, IGA Romeo's Food Hall.

The managing director of QIC Global Real Estate, Steven Leigh, said leasing interest in MLC continued to demonstrate the attractiveness of the centre's prime location and amenity.

"MLC Centre's occupancy rate reflects the market's desire for prime Sydney office tower space incorporating a strong mix of quality food retail and conveniences," Mr Leigh said.

GPT Group's head of office and logistics Matthew Faddy said the arrival of the new tenants marked a "stellar" quarter of leasing for the MLC Centre.

"We've found that tenants are not only looking for a convenient location and flexible workspace, but market-leading amenities that let their employees and visitors shop, eat, socialise and enjoy cultural events," Mr Faddy said.

Where once the MLC Centre was dominated by lawyers, it is now home to a range of tenants. These include advisers Magellan Asset Management, which recently signed a 10-year lease securing over 2423 square metres at the MLC Centre and will relocate about 80 Sydney-based staff to the new premises.

JLL head of strategic research Andrew Ballantyne said the Sydney CBD office market was undergoing a transformation.

"New infrastructure projects are reshaping the Sydney CBD," he said.

"Businesses are aware of the demographic shift in Sydney's population and a number of organisations have consolidated operations in the CBD to aid with the recruitment and retention of knowledge workers."