As Developers Turn Back on Office’s Comeback, Opportunity Rises

Reports of the office recovery were premature, but opportunities remain for those who know where to look. MSCI head of real assets research Ben Martin-Henry says the year began with cautious optimism, but several confidence shocks have derailed a smooth upturn in the office market. After shoots of growth emerged with 1 per cent positive capital growth in the fourth quarter of last year—the highest since mid-2022—the upturn was short-lived. Capital growth slowed to 0.7 per cent in the first quarter of this year, followed by 0.4 per cent and 0.3 per cent in the next two quarters. ▲ MSCI head of real assets research Ben Martin-Henry: A stable recovery has been upset by interest rates and overseas upheaval. “So things aren’t as rosy as we were hoping,” Martin-Henry says. “We haven’t hit negative territory, so that is definitely positive news.” Cushman &amp; Wakefield associate director for office research Nora Farren says the market is becoming a story of quality, selectivity and supply. “The significant issue is that new office development has become exceptionally difficult to deliver,” Farren says. Office towers generally take four years to complete, so supply not already underway is unlikely to be delivered before 2031, she says. National office supply under construction is currently 58 per cent below the previous cycle peak recorded in 2018, Farren says. “As existing supply is absorbed, availability across higher-quality assets is expected to tighten, reinforcing increasingly differentiated outcomes within office markets.” Office experiences a patchy performance Unlike previous cycles, the return of the office has been hindered by interest rate rises and overseas upheaval. This has led to a stark difference in the performance of individual assets, Martin-Henry says. “Offices in the same segment, say premium CBD offices in Sydney, lost 2 or 3 percentage points, others lost up to 30 percentage points. So it’s a vast range of performance—it’s very asset specific.” This could be down to tenancy bases or shorter WALEs with renewals coming up, he says. Secondary assets have barely recovered at all. ▲ Cushman &amp; Wakefield associate director for office research Nora Farren: Demand is concentrated in specific, high-quality assets. “Most of the recovery is not market led; it’s asset led. And when the asset is doing the heavy lifting, not the market, it means there’s still a lot of pressure within that market.” Perri Projects managing director David Scalzo is experiencing the same, having just launched its 20-storey Bennetts Lane office tower in the Melbourne CBD alongside Pellicano. “The market is highly segmented with geography, size, and property types moving in different directions,” Scalzo says. Changing times, changing market Declining premium grade vacancy—which was 10.2 per cent at July 2026—indicates that demand at the top level continues, Farren says. While the impact artificial intelligence will have on the workplace remains uncertain, how companies use their space continues to change. “This has led active occupiers to be the ones upgrading workplace quality, consolidating portfolios and aligning real estate strategies with workforce objectives,” Farren says. The strongest performing assets are generally focused on rental growth rather than additional incentive expansion, while the rest are focusing on growing design, amenity and sustainability credentials. ▲ Perri Projects’ $170 million Bennetts Lane development with Pellicano recently completed. Perri Projects has seen an uptick on these office refurbs. “Specifically, higher quality turnkey fitouts. This is making the challenge of attracting tenants a more capital intensive exercise upfront.” Wellness is no longer just a residential sector trend. “Tenants are hungry for a workspace and a lifestyle and are keen to upgrade and invest more to get it. There is also rising demand for more flexible offerings,” Scalzo says. “We have found that the state of the market is less about the legacy of Covid and more about emerging employment trends and the health and vitality of different business sectors. Demand for wellness, amenity, fitness, and F&amp;B features also remains very strong.” Offices in progress prove the point. Riverlee is planning a wellness-focused coworking tower , while a $203-million Cremorne timber office has just been approved. Perri Projects’ own Bennetts Lane project has a strong mixed-use profile, with a 1000sq m Lane Club of coworking space, gym and pilates studio and 10 retail tenancies to benefit occupants of the 7250sq m office space. Outlook for office markets Sector performance looks to remain segmented for a while yet. “[But] we are finding the decentralisation trend of the last few years is now swinging back,” Scalzo says. The market is hungry for A-grade and premium city-centre stock as a result of the demand for lifestyle, business connectivity, and economic centrality, he says. Farren says the Australian office market is approaching “an important transition point” in its cycle, as conversations shift away from demand and towards supply. ▲ Cbus sold the stake in 5 Martin Place for $100 million more than it paid two years ago. Office sales, like that of Cbus’s 5 Martin Place stake for $394 million and the Salesforce tower stake for $864 million, show continued demand in the transaction space. And having an illiquid asset with stable cashflow in a world of uncertainty shouldn’t be underestimated, Martin-Henry says. But it is finding capital that will prove tricky. “The death of the office sector keeps being prematurely reported,” Martin-Henry says. “It’s a moving target. There’s a lot of unrealistic positivity, but also unrealised value in the world at the moment.”

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Clare Burnett
Tue 03 Nov 26

As Developers Turn Back on Office’s Comeback, Opportunity Rises

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