Premium Offices Pull Ahead as Owners Rethink Workplaces

Premium office buildings are gaining an edge as business owners reconsider their workplace strategies. According to industry experts, tenant experience and wellness are becoming increasingly important in driving demand for prime office spaces. Dexus, a prominent player in the market, is experimenting with reusable turnkey fitouts to cut costs, minimize waste, and shorten downtime during lease transitions.

Similarly, IFM Investors anticipates AI-related growth to favor high-quality, amenity-rich offices, even as lower-grade submarkets face increased pressure.

CBRE's discussions with four leading Australian office owners reveal that premium buildings are being repositioned around experience, service, fitouts, and AI. Fiona Denison, a senior executive at Charter Hall, likens office portfolio management to running a hotel, emphasizing that premium offices now compete based on the overall experience, not just the physical workspace.

This shift is driving up costs and rents, as owners incorporate more amenities to attract and retain talent. Tenants are not resisting these costs, as they recognize the value a well-designed office brings to their workforce.

GPT Group's Matthew Brown takes a service-first approach, viewing offices as a service rather than a commodity. Tenants now expect a sense of community and connection to the building, placing additional responsibility on landlords to curate an engaging experience. Brown highlights the importance of innovation in cities like London and New York, which have helped upgraded buildings achieve higher occupancy rates and better returns for owners.

GPT attributes these gains to enhanced forward returns and the need for regular dialogue between landlords and tenants about business and workforce requirements.

Dexus is addressing the financial and environmental costs of traditional fitouts through its "Forever Fitouts" approach. This model aims to reduce the financial and environmental impact of fitouts, which are often removed after a five- to seven-year lease. Dexus' first pilot project, completed at 1 Bligh Street, involved co-designing the space with Woods Bagot and the Clean Energy Finance Corporation, which now occupies the premises. The company is collecting data to assess the financial and environmental performance of this model.

IFM Investors is also investing in its workforce's AI capabilities while acknowledging that critical thinking and creativity still require human intervention. The company sees B- and C-grade assets in submarkets facing pressure from AI-driven automation, particularly in administrative roles. At the same time, IFM believes that AI will open up more Prime and A-grade space with strong amenities for companies that use the technology effectively.

The firm is investing in its own team's AI skills and recognizes that human involvement remains crucial for high-quality workspaces.

The collective emphasis on service, wellness, community, and flexible fitouts signals a broader shift in the landlord proposition. Competition among premium office owners is evolving beyond location and base building quality, now encompassing factors like service quality, wellness provisions, and adaptable fitouts. This transformation aims to better support the diverse needs of tenants and their employees, ultimately driving occupancy, rent performance, and long-term value for owners.