Perspectives podcast: 5 rules real estate is ditching

The commercial real estate industry is reinventing itself, though not by choice. Market conditions are forcing investors, landlords and occupiers to abandon long-held assumptions and adapt to an environment where disruption is constant rather than occasional. Single-office location strategies no longer make sense, rising interest rates are changing the maths on office investment and mediocre buildings are undesirable. At JLL's Canberra Signature Event in June, panellists describe five shifts reshaping how the industry thinks about property, strategy and risk.

The advice that has remained consistent for years to consolidate your office footprint into one large space for efficiency and cost savings no longer holds, said Ainsley Reddy, senior director at JLL.

"In a depressed market, sizeable contiguous space is still hard to find, and I now actively question clients on why they assume they need one large footprint at all, rather than a more distributed or flexible model," she said.

The shift reflects a broader truth that flexibility matters more than economies of scale, particularly when future workforce needs remain uncertain.

The market spent years expecting interest rates to return to a 2-3% neutral range, but that assumption is now obsolete.

"The higher-for-longer rate environment, combined with construction costs up around 40% over five years means efficiency has to be found within existing real estate rather than assumed away by falling financing costs," explained Belinda Cheung, fund manager of the Centuria Office Fund.

A refreshed office fit-out now costs more than AUD$1,300 per square metre, while a new fit-out in Melbourne exceeds $2,500 per square metre. Investors can no longer bank on falling rates to improve returns and are instead prioritising stable income over future growth bets.

Canberra's office vacancy has climbed to 10.5%, but three-quarters of that vacant space concentrates in just 12% of assets. Premium A-grade properties in Civic and Barton have achieved rental growth of up to 44% since 2019, while lower-tier buildings face persistent vacancy regardless of the concessions they offer.

"Asset owners need to understand where their properties sit in this distribution," said Tim Mutton, managing director and head of Capital Markets, ACT at JLL. "Premium assets are holding pricing power and attracting tenants willing to pay for superior workplace experiences."

Tenants are making calculated decisions about what they'll pay for and what they won't tolerate even at a discount, he adds.

Flexible workspace, shared amenity and high-end facilities used to differentiate premium properties and justify higher rents, but today tenants expect them as standard.

Cheung noted that flex office options and premium amenities are now standard inclusions in Canberra buildings. The shift operates from both sides: landlords want shorter lease terms with less long-term commitment risk, while tenants want more optionality.

Even interior layouts are evolving. Bryan Froud, director at JLL Consulting, points to the rise of "library spaces" – open-plan areas for focus work that prove more space-efficient than traditional walled offices.

Predicting office space needs now requires forecasting year-on-year headcount growth over ten years while accounting for artificial intelligence and offshoring, both of which cut in unpredictable directions.

"AI was widely expected to be a productivity windfall, but some organisations are now facing significant token-usage costs that erode the efficiency or offshoring benefits they'd banked on," Froud explained.

Only 26% of organisations use AI for occupancy planning, according to JLL research, yet the technology already transforms property management by turning complex reporting that once took hours into tasks completed in minutes.