Commercial agents will have to reframe how they determine value across asset types, as AI emerges as a significant driver in the market, according to recent research.
The latest How is AI Reshaping Office Demand in Australia and New Zealand? report from JLL found that office markets across the country were not equally positioned for AI’s impact.
JLL national real estate economist Ronak Bhimjiani said it was critical for both agents and investors to understand that AI exposure could be both a risk factor and a strength of the market.
“For instance, markets with high AI exposure, like Sydney, have demonstrated significant demand growth, with the technology office footprint nearly doubling since 2020,” Bhimjiani told REB.
“This creates transaction opportunities in premium assets where AI-related and broader technology occupiers are clustering. These tenants typically require high-quality, collaborative space with strong connectivity and amenity, and they are willing to pay for it. “
He said that for agents, AI’s impact across the market meant a shift in leasing conversations.
“It’s no longer just about price per sqm, but it’s about positioning assets for the types of occupiers who will thrive in an AI-enabled economy.”
A case-by-case basis
According to Bhimjiani, AI’s impact on the office market would vary from city to city, with interest shaped by their own respective economic drivers.
“Office markets with strong AI exposure and robust technology ecosystems, like Sydney, have so far been clear beneficiaries of the rise of AI, with technology companies expanding their physical presence,” Bhimjiani said.
“By comparison, markets like Perth and Canberra are likely to be more insulated from the full force of AI disruption, given their resources-driven economy and concentration of government agencies, respectively.”
According to the report, Perth and Canberra were the capital cities with the weakest office markets when it came to AI exposure, with the WA capital lagging significantly behind the rest of the nation.
Conversely, Melbourne’s CBD had the highest level of AI exposure among the Australian capitals, but the second-lowest supply pipeline.
“This suggests that Melbourne is well-positioned to absorb potential AI-related employment shifts without facing oversupply pressures.”
The asset type difference
Beyond differing capital city markets, the report found that AI impacts would also vary across asset types.
The report found that the strongest demand in the office market was directed towards premium and high A-grade properties, designed around collaboration and innovation.
“Demand for these assets is resilient and growing, driven by occupiers seeking to attract and retain top talent in a competitive labour market,” Bhimjiani said.
“We expect these buildings to command the strongest rental growth and capital value appreciation. They are setting the new standard for what constitutes a modern workplace, and pricing is reflecting this flight to quality.”
Similarly, he said that mid A-grade to high B-grade properties experienced stable but selective demand, with tenants prioritising efficiency, flexibility and productivity, while lower grade buildings faced the highest risk.
With lower grade assets usually housing rent-sensitive SMEs, Bhimjiani said they were the office segment most exposed to AI-driven disruption.
“These assets often lack the modern infrastructure, amenities and ESG credentials required to compete for quality tenants.”
“Landlords face a challenging equation: urgent capital expenditure is required to remain competitive, but the tenant base may lack capacity to support the necessary rent increases to justify that investment.”
Bhimjiani said the price divergence across the three tiers of assets was widening, with landlords and investors urged to understand the dynamics that shape their markets.
“AI represents the most significant shift facing Australia and New Zealand office markets in a generation. Each market faces distinct dynamics based on its economic composition, AI exposure and office supply pipeline.”
Want to see more stories from trusted news sources?Make Real Estate Business a preferred news source on Google.
