Understanding the Current Office Markets

ACCORDING TO JLL Research, the CBD Office vacancy rate for Sydney has risen from 5.8% to 7.5% and for Melbourne, from 3.4% to 7.7% – as a direct result of COVID-19 lockdowns.

Despite the sudden increase, this surge ought not be seen as alarming.

Because, it has simply returned both these markets to a “balanced” situation – where the vacancy rate needs to hover between 6% and 8% for there to be an orderly leasing market.

Otherwise, both the Sydney and Melbourne markets were moving to a point where they would have soon restricted tenant choices, and placed undue pressure on rentals.

However, with people forced to work from home, the CBD office towers have become almost deserted. And this has meant many companies are questioning the need for such large premises. 

Even so, the most important benefit when you return to COVID-safe offices would be … that it finally signals the end of hot-desking. 

Over a decade ago, much of corporate Australia tried to sell their staff the flawed notion that hot-desking would be good for them.

It simply didn’t work as planned

More and more people reported feeling disconnected from their teams and close colleagues.

During the recent lockdown period, the mass exodus from the office to the home has reinforced both the casual efficiency and personal pleasure – that comes from face-to-face encounters.

To the extent it remains a fad, hot-desking will now require booking a desk for the entire day or week … to allow for proper cleaning. 

There will actually be fewer people using those desks anything like full-time.

Over three decades from 1990, the average space per person in an office in the Sydney & Melbourne CBDs decreased from 22.5 sqm to 18.6 sqm per person.

Things are soon to change …

Earlier this year, some office tenants even operated with as little as 8-12 sqm per person.  However, that trend is about to change completely.

Social distancing rules … including avoiding crowded lifts and requiring greater distance or even barriers between desks … will mean an inevitable fall in staff numbers on each floor – while also requiring more space to accommodate them.

Furthermore, given that most countries are far more affected than Australia … many businesses will seriously think about recalling personnel currently within their overseas operations – and re-locating them here in Australia.

Something to watch

Companies will also start to question the need to house their entire workforce within the CBD. And whether it perhaps makes more sense to decant whole departments into the suburbs – to be closer to their staff … and also reduce the dreaded daily commute.

Already, leasing agents are reporting a surge in enquiries from tenant representatives – seeking suburban space up around 500 sqm.

Bottom Line: As a result of all these factors … the future looks bright for suburban offices – with the likelihood of solid rent increases (and capital growth) over the next 3 to 5 years.

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