Australia’s new office development pipeline is expected to decline further from its multi-decade lows as elevated construction costs and tighter feasibility conditions halt new builds, according to new research from Cushman & Wakefield.
The report, The Cost to Build: Rising Economic Rents are Constraining New Office Supply, reveals that building costs are projected to continue to climb through to 2028 across all major central business districts (CBDs).
Brisbane is expected to experience the sharpest escalation, with cost growth outpacing Sydney, Melbourne, Perth, and Adelaide.
This surging cost environment has pushed economic rents, the rental return required to make a new project financially viable, well above what landlords can realistically achieve in the current market.
Cushman & Wakefield Associate Director of National Research, Jake McKinnon, said even the country’s strongest office markets are failing to justify new builds.
“Even in the strongest market, rents are not high enough to support most new office projects across Australia,” McKinnon said.
“Building costs are not the only barrier. Tighter lending conditions, more conservative risk pricing and stronger pre-commitment requirements are also restricting new supply, leading to some projects being delayed, deferred or reworked.”
The research shows the feasibility shortfall is currently smallest in Sydney, where market rents sit roughly 18 per cent below economic viability.
With ground-up developments heavily constrained, a major shift is underway.
Cushman & Wakefield Head of Project Development Services, Hutch Bykerk, said landlords are increasingly turning to asset transformation.
“For landlords and investors, refurbishment and repositioning strategies are becoming increasingly compelling,” Bykerk said.
“Repositioning existing assets can deliver compliance upgrades, quality, amenity and sustainability outcomes faster, attracting potential tenants at a lower cost compared to a ground-up development.”
For tenants, the dwindling pipeline means competition for premium, modern office spaces will intensify, inevitably driving up long-term occupancy costs.
Conversely, developers and investors will remain highly selective, leaning heavily on adaptive reuse and strict tenant pre-commitments before breaking ground on any new projects.
