Hybrid work drives demand for flexible, collaborative spaces

The Australian office refurbishment market in mid-2025 is characterised by an interaction of evolving work models, a continuing flight-to-quality trend, an increasing emphasis on sustainability and employee well-being, and cost pressures. While new office construction faces headwinds, refurbishment projects are gaining significant traction, particularly for well-located secondary assets.

The most profound influence on the office refurbishment market is the widespread adoption of hybrid work models. Companies are no longer solely focused on maximising desk space but on creating adaptable environments that foster collaboration, creativity and connection for employees who split their time between the office and remote work. This translates into demand for:

• Flexible Workspaces: Movable walls, multi-purpose furniture, hot-desking options and adaptable layouts that can readily change to different team needs and activities.
• Collaborative Zones: Dedicated areas for brainstorming, team meetings and informal interactions, often with advanced technology for seamless virtual and in-person participation.
• Quiet Zones: Private phone booths, focus rooms and soundproofed areas for individual work requiring concentration.
• Wellness-Centric Design: Integration of ergonomic furniture, natural light, biophilic elements (indoor plants, living walls), wellness rooms and even fitness facilities to support employee physical and mental well-being.

The shift away from traditional cubicle farms towards these more varied and human-centric spaces is a major driver of refurbishment activity. Businesses understand that a well-designed office can be a key factor in attracting and retaining talent, enhancing productivity and reinforcing company culture.

Vacancy Trends and the Flight to Quality

Despite elevated national CBD vacancy rates (around 14.5 per cent nationally in Quarter 1, 2025, with Melbourne at over 18 per cent, Sydney at 12.8 per cent, Brisbane at 10.1 per cent and Perth at 15.3 per cent), there’s a strong flight-to-quality trend that has been evident in the post-pandemic environment. Tenants are increasingly seeking premium-grade assets with modern infrastructure, high ESG ratings and attractive amenities.

However, the paradox lies in the fact that while prime vacancy has trended upwards, secondary market vacancies have stabilised and the spread between them has narrowed.

The Rise of Refurbishment for Value and ESG

This indicates that affordability is playing a significant role in occupier decisions. Rather than a blanket demand for premium, there’s a pragmatic approach emerging where businesses are seeking assets that meet minimum sustainability requirements and offer value. This is creating a compelling opportunity for the strategic refurbishment of well-located secondary assets.

Owners are finding better returns in targeted improvements that enhance key amenities and meet ESG credentials rather than undertaking costly wholesale redevelopments. National figures indicate over 207,000 square metres of upgraded stock is either under construction or highly likely to proceed in CBDs, with a further 78,000 square metres in non-CBD markets.

Cost Pressures and Fit-Out Challenges

The refurbishment market is not without its challenges. Rising construction costs driven by limited builder availability, increasing material costs and labour shortages are pushing development costs to unprecedented levels. Fit-out costs have seen an increase, averaging around 11 per cent in Australian cities over the past year. Sydney and Melbourne remain the most expensive locations for office fit outs, particularly for advanced hybrid workspaces.

Smart Technology Shapes the Office of Tomorrow

Technological advancements are also shaping the market, with a growing demand for smart offices. This involves the integration of AI devices, automated lighting and climate control systems, occupancy sensors and advanced audiovisual systems to enhance efficiency, comfort and productivity.

In conclusion, the Australian office refurbishment market in mid-2025 is thriving on the back of the hybrid work revolution. While grappling with rising costs, the focus is firmly on creating adaptable, employee-centric, sustainable and technologically advanced workspaces with a significant opportunity for the strategic upgrading of existing assets.