Strong leasing performance amongst new developments remains the key to unlocking new stock and investment, driven by tenant pre-commitments
Australia’s office sector is entering a period of constrained new supply, with national CBD completions projected to fall to less than half the 20-year average by 2027-2028.
New analysis from JLL reveals strong underlying demand for high-quality, sustainable workplaces with pre-commitment tenants now the key catalyst for unlocking the next phase of office development.
According to JLL’s data and analysis, 85 per cent of new office projects only commence construction once some level of tenant commitments are secured, highlighting the growing influence of occupiers in shaping Australia’s CBD skylines.
Despite elevated headline vacancy rates, JLL research finds that increasingly complex tenant requirements spanning ESG performance, wellness, amenity, and location are tilting demand towards new developments rather than existing stock. However, feasibility remains a major barrier as construction costs have increased by up to 38 per cent, financing costs have surged by up to 425 basis points, and required economic rents now sit well above current market levels in most CBDs.
As a result, developers are relying heavily on pre-commitments to make projects viable. JLL’s data shows that pre-committed developments achieve an average 92 per cent occupancy within two years of completion, compared with 77 per cent for speculative projects. Markets such as Melbourne remain strongly pre-commitment-led, while Sydney continues to demonstrate selective success in speculative delivery.
Lachlan Apperly, Research Manager at JLL said the findings provide confidence to developers and investors considering new projects despite ongoing cost pressures.
“Across multiple cycles, from the global financial crisis to the post-pandemic years, we’ve seen a remarkably consistent trend where most office developments are largely full within two years of completion. That resilience gives developers real confidence to move ahead, even in today’s more challenging environment.”
Tim O’Connor, JLL Head of Office Leasing – Australia, said pre-commitments were increasingly defining the trajectory of the office market.
“Pre-commitment activity will drive the next wave of supply. With occupier requirements continuing to evolve, developers are raising the bar to align with global best practice, further fuelling the supply crunch expected over shorter-term.
JLL forecasts that national CBD new supply volumes will average just 179,000 square metres per annum over 2027 and 2028, down from the 20-year average of 390,000 square metres per annum. The report suggests that with a limited pipeline ahead, developers who secure pre-leasing earlier in the development process will be well positioned to capture demand as supply tightens.
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