Australia’s commercial office market is facing what industry observers are calling a once-in-a-cycle event: roughly $10 billion worth of CBD towers are now actively seeking buyers, with multiple flagship properties hitting the block simultaneously across major capital cities.
The volume itself is not the story, cyclical peaks in transaction activity happen. The question is what’s driving it, and whether the pricing outcomes will mark a line in the sand or just another round of musical chairs.
Two types of seller in the same queue
Not every tower on the market is there for the same reason. Some owners are rotating capital, rebalancing portfolios, or exiting properties that no longer fit long-term strategy. Others are under pressure, loan covenants tightening as valuations slip, or simply unable to refinance at rates that make the asset cashflow.
The difference matters. Strategic sellers can wait, negotiate, or pull stock if bids disappoint. Distressed sellers have a deadline, and buyers know it. The first group sets the market. The second group tests it.
Right now, both types are in the queue at once. That creates uncertainty about what any given sale actually tells you.
What discount means what
If a tower sells at 10-15% below its 2021 peak valuation, that could simply reflect the yield-expansion adjustment everyone expected once the RBA moved rates. Normalisation, not crisis.
If discounts stretch to 25-30% or beyond, especially for assets with stable tenancy and no obvious capex burden, that’s a different signal. It suggests either:
- Buyers are pricing in a structural shift in demand for CBD office space (hybrid work normalising lower occupancy)
- Buyers expect the cost of capital to stay elevated longer than sellers do
- Distressed volume is large enough to reset the market below fundamental value
The first two are repricing. The third is overshoot, and creates opportunity, if you can hold and fund through the trough.
The catch
- Valuation books lag transaction reality by months. A tower marked at $200m internally might struggle to attract $150m in live bidding, but the owner won’t know that until they test the market.
- If several blue-chip assets fail to transact in the next six months, the repricing that didn’t happen in valuations will happen in sentiment instead, lenders tighten, owners scramble, and the distress scenario becomes self-fulfilling.
Pressure points in the sale pipeline
Three things could determine whether this wave clears at rational prices or jams:
Debt maturity walls. A significant portion of commercial property debt taken out in 2019-2021 is rolling over now, at rates 300-400 basis points higher. Owners who can’t refinance or don’t want to inject fresh equity will sell. The timeline is not negotiable.
Offshore capital appetite. Australian office has historically attracted foreign institutional buyers willing to take longer views and accept lower yields than domestic players. If offshore appetite has cooled, whether due to currency, competing opportunities offshore, or simple caution about hybrid work, the bid depth thins.
Tenant renewal risk. A tower with 60% occupancy and two major leases expiring in the next 18 months is a different proposition to one with 90% occupancy locked in for five years. Buyers will pay for certainty. Anything that forces them to underwrite re-leasing risk in a soft market gets discounted hard.
Base case and variants
Base case: Most of the $10bn transacts over 12-18 months at 15-20% below 2021 peaks. A handful of genuinely distressed assets go cheaper. Yield compression of the 2010s does not return, but panic does not take hold either. Office as an asset class reprices to the new cost of capital and demand reality, then stabilises.
Upside case: RBA cuts earlier or harder than expected, offshore capital returns aggressively, and CBD occupancy trends stabilise faster than feared. Discounts narrow to 10-15%, and some quality assets achieve close to book value. Owners who waited are vindicated.
Downside case: Several marquee towers fail to sell or withdraw, debt maturities force distressed exits at 30%+ discounts, and lenders reassess commercial exposure across the board. Credit tightens, valuations spiral, and the repricing overshoots fundamentals. Recovery takes years, not quarters.
What to watch in the next four to six months
Transaction volume is less informative than transaction quality. If the first few deals are portfolio rebalancing by cashed-up institutions at modest discounts, the market holds. If the first few are distressed exits at sharp haircuts, sentiment shifts and buyers wait for better.
Watch:
- Which assets withdraw versus transact, and at what discount to asking
- Whether offshore buyers re-enter in size or stay selective
- Any lender moving to tighten LVR requirements or exit commercial exposure
- Vacancy and incentive trends in premium versus secondary grade stock
The difference between orderly repricing and forced liquidation is often just timing and sequencing. If enough sellers blink at once, the market does not catch them, it steps aside.
If you hold commercial office exposure
Pressure-test your own position against the downside case, not the base case. Can you fund through a 24-month period of weak pricing and limited transaction activity if you need to? If a tenant vacates, can you carry the space and offer competitive incentives to backfill?
If the answer is yes, this cycle is a waiting game. If the answer is no, the decision is whether to exit now at a known discount or risk a worse outcome if the market deteriorates further.
For buyers: don’t assume everything on the market is distressed, and don’t underbid quality assets expecting panic. But if you can move quickly and fund without drama, there will be genuine opportunities in the next 12 months that don’t come around every cycle.
Subscribe to the newsletter for weekly updates on commercial property, rates and credit conditions.
General info, not financial advice.
