Size of leased office space is higher in Melbourne, as Sydney sees a reduction of office space

“As organisations grapple with economic uncertainties, headcount fluctuations, and the structural changes brought about by the rise of working from home practices, the volatility in office size categories is expected to persist,” Mastrullo said.

The research group’s data also shed light on the prevailing theme of the flight to quality. More companies are taking advantage of rent deals being offered to entice companies to relocate to upgraded premises. Incentives being offered can be free office fit-outs and car spaces, among other deals.

This has led to a number of older assets sitting empty and the pressure is now on landlords to refurbish their sites to offer smaller, high-end office space to attract tenants.

But if too costly they will have to sell the asset to a developer who has the cash to undertake the extensive work needed to bring the building up to a premium level.

Mastrullo said on a national basis, tenants have consistently sought the opportunity to upgrade their office space.

She said the so-called “stranded assets” are a growing concern as vacancy remains elevated and largely concentrated within secondary grade due to shifting working models; changes in industry needs with technological advancements; outdated buildings lacking modern amenities and efficiencies and alack of energy efficiency features or environmental, social, and governance considerations.

“While cost implications may play a role in these decisions, the ongoing market dynamics suggest that the flight to quality will gain more consideration as businesses stabilise in the coming years,” she said.

One such deal was by the Seven Network which is relocating its Melbourne operations, including workplace and broadcast studio, to Lendlease’s latest development, Melbourne Quarter Tower, in early 2025.

Relocating from 160 Harbour Esplanade, Docklands, Seven Network will occupy 4500 square metres across levels three and four of Melbourne Quarter Tower, the precinct’s flagship commercial building that is currently under construction.

Seven’s new headquarters will feature a state-of-the-art workplace and high-tech news broadcast studio that will support the network’s digital future.

Located on Collins Street and opposite Southern Cross Station, Melbourne Quarter Tower will span 34 levels and is scheduled for completion by mid-2024. It will be the final commercial building delivered in the Melbourne Quarter precinct.

Tom Mackellar, managing director, development, at Lendlease said the relocation of Seven Network reflects the “growing demand we’re seeing for premium, mixed-use office precincts like Melbourne Quarter that enhance the workplace experience, support productivity, and help companies to attract and retain talent”.

In its latest credit rating report, Moody’s Ratings also said landlords with well-located and good quality assets will continue to outperform those with secondary assets.

It has forecast that office rental income in Australia will grow at modest levels in 2024, supported by built-in annual rental escalations of 3 [per cent to 4 per cent.

“Market vacancy levels have increased above historical averages, and we expect further increases in the next 12 months as more supply comes online,” the report said.

It added that the higher credit-rated companies will see their vacancy levels remain stable at around 5 per cent on average, reflecting the high quality of their asset base.

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