Paul is a co-founder and director of Debuilt Property. Paul has extensive experience in construction, project management, development management and asset management.
There is a great deal of speculation taking place about the immediate, and long term, future of the office sector. Key issues influencing the discussion include:
The immediate economic impact on business
The longevity of physical distancing precautions, and
The opportunity created by the fast tracking of the use of technology.
Monitoring sub-lease vacancy rates provides an excellent barometer of the office sector, as it responds more dynamically to the state of the market and business demands. Companies with changing requirements, but locked into a lease, can react in almost real time. At the same time, it provides accommodation solutions for companies that are not keen to lock-in to a longer-term lease and who are seeking greater flexibility.
Figures from Colliers International identified that during the two-month period of July and August, Sydney sub-lease availability increased by 21%, from 131,214 sm to 159,015 sm. Melbourne increased by 56% from 63,349 sm to 99,080 sm. However, Brisbane was reasonably stable with an increase of only 3%, from 30,537sm to 31,281 sm.
The analysis indicates that in both Sydney and Melbourne over half the new sub-lease space added in these two months was a result of COVID-19 market conditions. This is obviously not surprising and indicates the direct impact on businesses due to immediate economic impact.
As is the case during any downward cycle, the office market will need to recalibrate over the next few years due to the COVID-19 related reduction in demand and new supply coming on-line, but with a slow-down in new commencements. With an ever-increasing focus on quality accommodation to provide the best environment for the workforce, premium product will always be in demand.
Assuming the shorter term (we hope) economic impact of the COVID-19 led recession, the broader question is whether our workplace practices are likely to permanently change due to our rapid exposure and adoption of technology. The majority of Australians are now proficient in video conferencing and document sharing; printing reams of documents has been replaced by using multiple screens, and most of us have managed to achieve a reasonable broadband connection. So, the opportunity to work from anywhere is now a reality.
There is no doubt that corporate travel will be impacted by the ease of video conferencing, as will travelling to local meetings. Seminars, courses and professional development will be delivered cheaper and more conveniently through webinars. Live attendance gatherings will not disappear completely, as networking, relationship building and ‘corridor discussions’ cannot be replaced by a Zoom meeting. However, longer term, there will be an impact on commercial meeting rooms and conferencing space.
In terms of office accommodation, there are numerous surveys and abundant commentary on worker sentiment towards working from home. By all accounts very few people want to only work from home or only work from the office. Interestingly, whilst many of us in Melbourne, having been in lockdown for quite some time, feel a very strong urge to return to the office, there is still a very low proportion of workers that have returned to the office in Western Australia, South Australia and Queensland. Perhaps the freedom of movement that they have maintained in daily activities lessens the desire to return to the office. What seems to be the dominant view, however, is that everyone feels liberated by the flexibility that now seems to be on offer.
Whilst there appears to be a positive view on productivity and employee sentiment, the whole exercise is still a bit of an experiment, with the novelty potentially starting to wear off.
Process driven work lends itself to remote working, but if you were white boarding a business strategy and wanted to maximise team building, workplace socialisation, networking, mentoring, professional growth and a sense of belonging, the first choice would be personal contact (maybe with a touch of physical distancing thrown in). Great innovation, creativity and strategic outcomes are always better achieved through bringing people together to collaborate in person.
Another factor, not necessarily too heavily promoted, is that whilst 2020 has provided an opportunity for people to prove that productivity does not disappear if you are not in sight, there is still a preference from many managers to be closely connected with their workforce. We are likely to see a more obvious drive by CEO’s to encourage their workforce back to a COVID safe workplace.
For most businesses that operate in an office environment, people are the most valuable and costly resource. Office accommodation might constitute say 6-8% of business cost and whilst any saving might go straight to the bottom line, a major saving in accommodation might have a relatively minor overall impact compared to the impact on the culture of the business.
Businesses not looking to transition to an increased outsourcing model will continue to seek to create the best accommodation environment in order to attract and retain the best people.
It is highly likely that we will see an evolution, rather than a revolution, in office accommodation. But providing quality accommodation (with an increased area per person) will remain important, with the big shift being in workplace flexibility.
