• Building obsolescence is an important issue in Australia’s CBD markets, with 46% of stock in Sydney’s CBD over 30 years old, 38% in Melbourne, 35% in Brisbane and 32% in Perth. • As the market becomes more discerning and yield spreads widen between prime and secondary, the new construction activity slows and vacancy increases, the case for refurbishing and repositioning assets becomes more compelling. • The decline in the medium-term supply outlook, the age profile of stock and the expected rebound in tenant demand in late 2011, provides a window of opportunity to reposition an asset ahead of more favourable market conditions with limited competition from new development. • Tenants are demanding workspace that is a generation on from much of Australia’s building stock with sustainable features, functional space designs and a more positive work environment. • Sustainability is key when refurbishing an asset due to the continued evolution of tenant demand (even in a deteriorating market) and legislative changes. Short-term wins include efficiencies related to the power and cooling systems which have simple returns in one or two years’ time, such as installing lighting timers and zoning to improve power efficiencies. • In ageing buildings, tenant retention and rental income can be improved by considering refurbishing programs aligned to tenant needs. • Minor or major staged refurbishment strategies can be considered by building owners looking to reposition their assets and taking advantage of the forecast improvement in market conditions. The minor refurbishment strategy considers superficial works that require small capital expenditure in order to upgrade a tired building such as improving the lobby or an uplift of the lift carriages. Major upgrade works require more significant capital expenditure to upgrade the appearance and functionality in order to reposition an asset. • Jones Lang LaSalle’s scenario analysis indicates that both minor and major refurbishments represent a significant improvement in asset value with the major refurbishment providing the greatest overall return on investment. • A strategic staged approach is recommended if capital is scarce; minimal capital expenditure may be spent on minor upgrades to retain existing tenants with further, more significant refurbishment works to be carried out in the medium term in order to reposition the asset.