As occupiers adjust policies to navigate remote working and attract employees back to  the office, new research quantifies the impact of higher-quality workspaces on office building occupancy. 

According to Cushman & Wakefield’s Rethinking Australian Offices 2024 report and based on an analysis of  250 leasing briefs in the Sydney and Melbourne CBDs in the past 12 months, 45% of tenants changing  offices within the CBD moved into a higher-grade space. 

Alongside movement by building grade, tenants are seeking better access to amenity in prime locations.  This has supported a recentralisation trend with a significant proportion of tenants moving closer to the city  core.

In Sydney, one-third of the tenants relocating from western and midtown precincts moved into the city core.  

While the ‘flight to quality’ among office occupiers has been gaining momentum over the past two years,  Cushman & Wakefield modelling can now reveal the impact of an uplift of building quality on tenant  demand, taking into account the site, structure, services, spaces and scenes. 

According to Cushman & Wakefield’s research team, the NABERS rating forms the most suitable proxy for  building quality across these five dimensions due to its coverage of a large sample of Sydney and Melbourne  CBD buildings and close correlation to building grades. 

After controlling for several factors including location, grade and amenity value amongst others, the new  research finds that increasing a building’s within-grade quality from standard to above average corresponds  to a 5% decline in vacancy and a 7% increase in net effective rents.

Even modest upgrades produced yield benefits, with a 2% vacancy decline and a 3% rent increase. The research confirms that the uplift in rents is due to higher face rents rather than tighter incentives, suggesting landlords can at least partially pass on the costs of investments in building upgrades.

The occupancy and rental benefits from investing in quality were seen equally across the Sydney and Melbourne  CBDs, with difficult-to-lease areas, such as lower floors, seeing the greatest positive impact. 

Sean Ellison, National Economics & Forecasting Manager, Cushman & Wakefield, said: “As many occupiers  gravitate to higher quality buildings as they adjust to flexible working, landlords tend to have one primary  lever in response - upgrading their assets.” 

“Our research confirms the significant impact of quality on a building’s performance when you isolate it  from other factors. While the impact was seen evenly in Sydney and Melbourne, we found that rents  appear more sensitive to grades in Sydney and the same for amenity values in Melbourne.” 

Maria Russo-Fama, Director – Client Services, ANZ, said: “Investing in upgrades is not just a smart move  but a necessary one for landlords who want to stay ahead as the ‘flight to quality’ trend continues to  dominate Australia’s office market.” 

“Whether it be through more efficient and flexible office layouts, energy efficiency, or events and pop-up  installations that engage tenants, our analysis demonstrates that building quality can attract tenants and  yield long-term financial benefits that outweigh the initial investment.” 

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