Unlocking capital value for returns – What’s shaping competitive assets?

By Knight Frank Partner, Head of Institutional Sales, Australia Rob Sewell

In today’s market, the interplay between amenity, ESG performance and incentives is reshaping how assets compete.

Capital office markets remain driven by a simple principle: assets must be leased to generate return. What has shifted materially is how those assets achieve occupancy and at what cost.

Location still drives demand with prime positions in Sydney’s CBD core, Melbourne’s Eastern core and Brisbane’s Golden Triangle. Tenants seeking proximity to clients, talent and infrastructure will often prioritise address over amenity. In these precincts, incentives remain comparatively lower, and landlords can rely on rental growth to support value.

However, as soon as you move beyond these core locations, the dynamic changes. Secondary and emerging precincts are where the real interplay between amenity, ESG and capital value becomes apparent. Here, landlords are no longer competing on location alone, but they’re competing on experience.

Amenities as a lever to reduce incentives

Amenities have become a critical lever in that equation. End-of-trip facilities, wellness offerings, curated food and beverage, and flexible communal spaces are no longer ‘nice to haves’. They are tools to attract and retain tenants, particularly as businesses look to re-engage their workforce in a hybrid environment.

Higher-quality amenities can reduce the level of incentives required to secure a tenant. This is particularly relevant in markets where incentives remain elevated. Knight Frank’s Horizon data highlights the scale of this across Australia: in Sydney, prime gross incentives range from 32.4% in the core to over 42% in southern precincts, while in Melbourne, prime net incentives stretch beyond 50% in several submarkets.

The key consideration is whether investment in amenity and fitout offsets the impact of elevated incentives. Increasingly, this investment is proving justified, with well-executed upgrades reducing incentives, stabilising income and supporting stronger capital outcomes.

ESG as a prerequisite

ESG credentials are rapidly also becoming non-negotiable. For institutional-grade tenants, including the big four banks and government occupiers, sustainability performance is now a prerequisite.

This has direct implications for liquidity as well as leasing. Assets without credible ESG are not only harder to lease; they are also harder to sell. In that sense, ESG is less about unlocking upside and more about protecting value.

Amenities can enhance a building’s competitive positioning and improve leasing outcomes, particularly outside prime locations. ESG ensures the asset remains relevant in a market where regulatory pressure, corporate reporting requirements and tenant expectations continue to evolve.

The key is balance

The most successful assets are those that balance, even within core markets, tenant expectations. Organisations are increasingly viewing the workplace as a tool for culture, productivity and talent attraction. For landlords and investors, the implication is clear: capital expenditure decisions must be more deliberate than ever.

It is no longer sufficient to rely on location alone, but it’s also not viable to overinvest in features that do not translate into leasing outcomes. The focus must be on targeted investment, aligning amenity and ESG strategies with tenant demand, market positioning and long-term asset performance.

This article is from Knight Frank’s The Tenant View publication. To download the report, click here.