Property developer Mirvac is focusing on premium office and apartment projects to navigate challenges affecting the broader commercial and residential real estate markets. At a recent event marking the topping out of its 55 Pitt Street office tower in Sydney’s Circular Quay, Mirvac CEO Campbell Hanan outlined the company’s strategy amid ongoing market pressures.

Hanan emphasized that property cycles tend to favor high-quality assets, a trend now intensified by elevated interest rates and constrained new supply, which together have contributed to shortages and distress in some market segments. Despite elevated vacancy levels across the Sydney commercial property sector, the market is reportedly balanced at the premium end, with a marked divergence emerging between occupancies in premium-grade buildings and lower-quality properties.

“The flight to quality is real,” Hanan said, noting that demand for superior office spaces has accelerated in recent years. The 55-storey tower, developed in partnership with Japan’s Mitsui Fudosan, is already more than 40 percent leased to tenants including MinterEllison, Aon, and Baker McKenzie. Rents for prime Sydney CBD offices rose by 8 percent in the year to September, with premium-grade vacancy rates falling to 9.2 percent, their lowest since early 2022.

Contrary to fears of widespread corporate downsizing, Mirvac reports steady demand from tenants, with no evidence of significant reductions in office footprint. Hanan suggested that some large companies are reversing prior cuts, recognizing they may have reduced space too drastically.

The limited new office construction supply contributes to this dynamic. Mirvac and rival Charter Hall remain among the few developers constructing large-scale towers in Sydney’s CBD, with new supply constrained until several projects slated above the upcoming Hunter Street Metro station are completed within the next decade.

While the office segment shows resilience, Mirvac's residential business continues to face headwinds amid a subdued housing market and weak investor sentiment, partly driven by recent federal government reversals on property tax policies. Despite this, Hanan expressed cautious optimism that the worst phase of the downturn may be behind the sector, describing current conditions as largely an issue of confidence.

“There is no doubt that higher interest rates and tax changes have impacted confidence, along with commentary on falling home prices,” he said. “It feels to me now that the market is finding a bottom.”

Although some analysts forecast ongoing challenges for residential developers extending to 2028, Hanan pointed to underlying fundamentals including population growth and insufficient housing supply as key factors that will eventually support recovery. He highlighted Mirvac’s position to benefit from shifts in buyer behavior, particularly among downsizers who prefer completed apartments over off-the-plan purchases.

This approach may help Mirvac mitigate risks faced by smaller competitors reliant on private credit markets, which remain tight and could limit their capacity to start new developments. Hanan also noted that expected distress in the sector could reduce competition for land acquisitions, potentially lowering site costs for Mirvac.

“The shift will be, as private credit goes through the cycle it’s going through, who’s going to finance the commencement of construction in projects,” he said. “Securing land won’t be a problem. It will free up the landscape of competition for us.”