The office space conundrum for businesses and landlords
The debate about likely forthcoming use of office space is rapidly gathering momentum among businesses and landlords.
QIC Global Real Estate, which invests in a range of assets in both public and private markets, reports that because COVID-19-enduced chaos continues to suppress white collar employment rates, Australia’s demand for office space this year is expected to be 700,000 sq m less than in 2020.
QIC predicts companies will tend to hold on to flagship central locations and that about half the workforce is expected to work from home two days a week indefinitely.
To what extent working from home is a good or bad thing for workers, their employers or the economy is very much part of the debate.
Opinions from Macks Advisory’s sources are often sharply divided.
Some conflicting perspectives
Many employees, wary of being infected by the corona virus while commuting, are nonetheless keen to get back among work colleagues.
Others, despite interruptions by family and social life, prefer coping with these rather than being metaphorically tethered to an office desk.
How will they react to employers who want them back in the office?
Brisbane-based Jamie Pherous, CEO of Corporate Travel Management (CTM) that employs 2400 people worldwide, has declared publicly he believes it’s better for staff to work in offices rather than from home, especially those under 35.
Because most CTM’s employees under 35 are reported to prefer the social aspects of working in an office, he’s an employer who won’t have trouble acting on his belief that collaboration and problem-solving are best done there.
Mr Pherous has called for business leaders in all CBDs to “show leadership” by recalling employees to offices, thus helping to restore to profitability thousands of centrally located small businesses dependant on office workers. But surely these leaders will make decisions about office use essentially on how it affects their own bottom lines.
Similar offices but differing views
In a recent media statement issued from London, Flight Centre co-founder Graham Turner said he was encouraging all his staff in Australian and New Zealand offices to return to work.
But we understand those in the UK and US are continuing to work from home. Clearly the demand for and use of office space in future will demand essentially on the extent of a country’s control of the pandemic.
Certainly any prediction of the early demise of office towers is premature. In Australia there is still strong support for belief they fulfil an essential need for human contact and face-to-face communication, while also providing the most efficient and profitable ground for collaboration.
Towards the end of last year Property Council of Australia figures were showing increases in CBD office occupancy since October in all CBDs except Melbourne. The largest were 60% in Brisbane, 73% in Adelaide and 77% in Perth.
Landlords are busy tackling the unenviable, unpredictably difficult task of trying to determine their future, heavily reliant as it is on how tenants will decide henceforth to use office space.
The variables in this are conflicting
Early indications are many employers will move away from the traditional arrangement of one employee per desk to a more flexible structure where staff can book space according to immediate need.
We understand CBD landlords are being advised of a likely 10% to 15% long-term drop in demand for space, mainly among lower grade office assets, despite an expected increase this year from two to 2.5 days a week on average that employees will work from home.
How does this relate to a forecast by Investa, Australia’s largest owner and manager of quality real estate, that requirements for social distancing and the longer-term shift towards collaborative space and meeting rooms, will drive upward pressure on work space by ratios of between 15% and 20%?
It’ll be interesting to see how many CBDs other than Adelaide’s, will inaugurate business attraction programs similar to one recently started by retail consultant and former Mainstreet SA chairman David West. How might these affect office demand?
We understand the Maras Group, Econ Property Group and Evans + Ayers have signed up for Mr West’s Retail Adelaide City program which connects potential tenants for shops and offices with appropriately matched professional leasing agents and property owners.
Where does the conundrum leave you?
If, as either a landlord or a business operator you haven’t yet been caught up in the debate about future use of office space, expect this to happen imminently, and for conundrums involved not to be easily resolved.
You can’t expect there will be a one-size-fits-all resolution, especially for the wide variety of business operators who will have to take into account not only their and their employees requirements and aspirations, but those of governments.
This much however is sure. The demand for office space and how it is used henceforth will soon, like the structures and running of businesses, be very different from what it was in 2019.
