The Property Council of Australia's Australian Office Market Report shows that last month's Newcastle office vacancy rate was a massive 14.5 per cent.

This is the highest level since 1995's 15.6 per cent.

Office vacancies jumped an alarming 4.5 per cent to January's figure in 12 months alone.

Property Council of Australia regional director for the Hunter Kristen Keegan said a shortage of premium or A-grade offices within the city would force businesses to look outside the region.

"There is no doubt that businesses continue to demand A-grade space in the Newcastle CBD, but we are not seeing enough supply to satisfy this demand," she said.

Ms Keegan said redeveloping lower-graded offices into premium space in the city's west end was the key.

"There needs to be strong leadership and a clear plan to reinvent this space to meet the demands of businesses and provide new employment opportunities," she said.

"The Hunter Development Corporation Renewal Report could deliver our best chance to get on with the key urban renewal projects that Newcastle so desperately needs.

"There needs to be a decision, funding and action, and it needs to be now.

"The NSW Government is not off the hook and we will continue the push to build the CBD that the Hunter Region deserves."

But Raine and Horne Commercial Newcastle agent Alan Tonks said redeveloping the west end into residential space was more feasible.

"Turning these into A-grade space is admirable, but sometimes the physical constraints such as no car parking just can't be fixed," he said.

"People want A-grade office space for their large floor plans, sustainability and car parking."

Newcastle valuer for the past 30 years Bob Dupont said redevelopment was the only answer for older offices, but said some of the development hurdles had to be cleared.

He said mine subsidence, approvals, levies and planning controls were just some turn-offs for developers.

According to the report, the lowest or D-grade was the most unpopular, with vacancy rates of 26.3 per cent for January .