Investa report reveals flight to quality is taking shape with the Great Office Upgrade

Investa report reveals flight to quality is taking shape with the Great Office Upgrade

Following a solid initial post-COVID rebound, total market demand for Australian office stock softened through the second half of 2022. However, Investa’s analysis of leasing data has revealed Australian office markets are experiencing the Great Office Upgrade, a clear trend of tenants upgrading across and within office market grades. 

In its latest Investa Inside: Office Market Outlook Investa reports that the main beneficiaries from tenant upgrading activity have been Australia’s Premium grade CBD buildings, with 4% growth across this market in 2022. In comparison, Australia’s A Grade office market, comprising the largest market by building grade (45% of the total Australian office market) is seeing softer growth, being weighed down by a significant amount of within-grade ‘tenant churn’.  

David Cannington, Investa’s Head of Research said: “Australian office tenants are undergoing the ‘Great Office Upgrade’, relocating and actively upgrading their office workplace to meet their post-pandemic requirements.” 

Mr Cannington added: “Australian CBD office markets are adjusting to the combined impact of both a reset in tenant requirements and the challenge of macroeconomic headwinds. However, conditions will continue to favour office buildings and workplaces that provide market-relevant facilities and high-quality tenant experiences.” 

Investa’s analysis shows The Great Office Upgrade reinforces a post-pandemic tenant preference for buildings and office space that combine high performance, enhanced customer experience and greater flexibility. Additionally, it also reflects the current favourable office rental affordability conditions tenants are facing. 

Mr Cannington commented: “Tenant demand for higher grade office space has driven a recovery in prime office rent growth across Australia’s major CBD markets. However, rental increases over the past year have only increased at around half the rate of office-based business income growth.” 

Mr Cannington added: “There are undoubtedly some challenging business conditions Australian tenant businesses are facing. However, elevated incentives and easing office rental affordability have offset some of these pressures, enabling tenant businesses to upgrade to buildings and office space that deliver high performance, enhanced customer experience and greater flexibility”. 

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