Melbourne towers face risk going out of date

A mix of tougher environmental standards and changing work patterns could leave office landlords picking up a hefty bill.

MELBOURNE, AUSTRALIA - FEBRUARY 28: The Melbourne skyline is seen during trackwork at Flemington Racecourse on February 28, 2025 in Melbourne, Australia. (Photo by Vince Caligiuri/Getty Images)

Billions of dollars of investment in Australia’s older office buildings will be required in the coming years to prevent them from becoming obsolete, according to new global research from JLL, which lists Melbourne as the city with the largest pool of “at-risk” office stock.

JLL’s “Opportunity through obsolescence” report reveals that even under a “moderate” scenario, $5.2bn of capital expenditure is required to upgrade 1.8 million square metres of Melbourne office space currently at risk of becoming obsolete due in part to rising sustainability requirements and the impact of flexible working arrangements on tenant demand.

Sydney is not far behind, with $4.9bn of investment required to keep 1.7 million square metres of office accommodation viable, while Brisbane is better placed with 700,000 square metres of at-risk product requiring $2bn of investment.

From a global perspective, Australian cities are less exposed to near-term obsolescence than many global peers, thanks in part to higher levels of new office buildings compared to other markets.

Tokyo, New York and Paris are ranked as the three cities with the largest pool of potentially unviable office space.

The report reveals that upwards of $US1.2 trillion ($1.9 trillion) in capital expenditure globally could be needed to bring office assets at the end of their life-cycle up to current standards, with about half of all global office space likely to require substantial investment.

Speaking during a recent visit to Australia, JLL global chief executive of project and development services Cynthia Kantor said a “people-first strategy” was key to combating office obsolescence.

“The traditional approach to thinking about work spaces was that people had to adapt to the workplace,” she said. “Now, employers are recognising that workplaces must adapt to people, to retain and attract top talent.

“This is driving a major rethink in how office space is used.

“It’s about how people live, work and play and combining this with the context of obsolescence.”

The JLL research finds there are four key factors driving the increasing risk of building obsolescence – climate risk, increasing regulatory pressure, changing locational preferences, and shifts in demand from traditional to emerging real estate asset classes such as data centres and student accommodation.

While Australia’s largest cities are better placed than their global peers, JLL’s research finds the costs to retrofit office accommodation in Australia are among the highest in the region.

While Tokyo is the most expensive city in Asia-Pacific for office fit-outs at $US2071 per square metre, the next four most expensive markets are all Australian cities – Sydney ($US1929), Canberra ($US1926), Adelaide ($US1897) and Melbourne ($US1868).

However, JLL’s local head of project and development services in Australia, Alan McKay, said the upfront capital cost often delivered longer-term benefits for landlords, particularly when they considered how their buildings interacted with their wider precinct. “Prime office assets are filling rapidly in Australia,” he said.

“ There’s a big opportunity to reposition and refurbish those office assets that are at risk of obsolescence, to match the amenity of the in-demand prime assets. That can be achieved by focusing on three things: the wider precinct, the building and the workplace.

“The workplace is now an ecosystem that extends into base buildings and the surrounding urban fabric – think great places to eat and drink, green spaces, retail, lifestyle and convenience services. Many owners are looking at how their office buildings interact with the wider community and how to create curated experiences that bring vibrancy to the precinct as well as drive sustainability ambitions.

“For some owners where it is not possible to make changes to the wider building precinct, this means bringing the precinct into the building, activating space and creating change at the building level. So there’s many options to explore to add a placemaking element to existing office buildings and precincts.”

Originally published as Melbourne towers face risk going out of date