Tough Times Force Dexus Collin St Office Tower Pause

Dexus has puts on hold its planned flagship office development on the former Reserve Bank of Australia site in Melbourne’s CBD.

The 39-storey tower, earmarked for Collins Street, comprised about 43,200sq m of premium office space and had been positioned as a next-generation workplace offering targeting top-tier tenants.

However, the scheme has been paused as rising construction costs, elevated financing rates and subdued leasing demand continue to undermine development feasibility across the office sector.

“Currently, the DA approved scheme does not meet our high investment hurdles given alternative opportunities to drive stronger returns for security holders,” a Dexus spokesperson told media.

The decision echoes a broader slowdown in new office commencements, particularly in Melbourne, where vacancy levels remain higher than in Sydney and tenant demand has yet to fully recover following shifts in workplace patterns.

Industry conditions have become increasingly difficult during the past two years, with developers facing significant cost escalation alongside tighter capital markets, forcing many to delay or redesign projects to improve viability.

Dexus is understood to be focusing on capital discipline and performance across its existing portfolio, prioritising asset management and leasing outcomes rather than committing to new large-scale speculative developments.

The Collins Street site was acquired in 2018 for $230 million. Its initial plans for the site, approved the next year, were upsized by 55m in 2021 when Dexus acquired the development rights to the prestigious Melbourne Club for the “best business address in the country”.

▲ A rendering of the Dexus office scheme planned for its site at 60 Collins Street in the Melbourne CBD.

That proposal was approved unanimously by the Future Melbourne Committee for 52-60 Collins Street, with the addition of club buildings at 36 Collins Street and 57-67 Little Collins Street.

Despite the pause, the developer is expected to revisit these plans when market conditions improve.

Dexus Funds Management co-own the site with Black Swan Properties and Cycnus. It also owns the 80 Collins Street tower, 360 Collins Street and 525 Collins Street.

The pause underscores a growing divide in the office market, where investor appetite for prime, well-located assets remains intact but new supply is constrained by feasibility pressures and uncertain tenant demand.

It also highlights a broader recalibration across the commercial property sector, as developers and institutional owners reassess timing, scale and risk in response to a more volatile economic and policy environment.