This article is from the Australian Property Journal archive
THE impact of widespread working from home could lead to a net decline in Australian office tenant demand of 5% to 15% over the next three to five years.
According to new modelling from Cushman & Wakefield, less than 15% of Australian workers want to be in the office every day or nearly every day, while around 50% would prefer one to four days a week of working from the office.
If worker preferences are taken in to account, most office tenants will likely have less staff present in the workplace, which would lead to a drop in occupancy levels.
“Due to strong employment growth, changing space utilisation and the war for talent, we believe that WFH will not lead to large falls in occupancy across office markets in the medium-term,” said Chris Marrable, director of strategic consulting at Cushman & Wakefield, ANZ.
However the long-term impacts WFH could still be absorbed by 2026, thanks to new workplace strategies that call for greater space per worker, combined with strong employment growth.
“Given the average CBD weighted average lease expiry (WALE) is about five years, many tenancies could move through a first iteration of more agile working in the next leasing cycle. When coupled with strong employment growth, we should see the drag on tenant demand from WFH wash through by 2026,” said John Sears, head of research at Cushman & Wakefield, ANZ.
In order to offset the assumed reduction in space needed, the workforce would need to increase by 24%. That is based on a higher occupancy ratio of 80%, with all staff working from one day each week, without changes to workspaces.
RBA employment forecasts in 2022 and longer-term Deloitte Access Economics predictions, currently anticipate major city centres will see employment gains in excess of 10% by 2026.
Meanwhile with lower unemployment, employers are driven to retain talent and increase productivity by improving workspaces by upping offered amenity and collaborative work places, leading to the redistribution of space from individual desks to more interactive workspaces.
“The war for talent and flight to quality will motivate occupiers to reengineer the office experience, whilst landlords should ensure their properties have excellent amenity with the flexibility to adapt to changing tenant needs,” added Marrable.
Cushman & Wakefield’s modelling shows that this would reduce the effects of lower occupancy ratios by 10.2%.
“While the smaller tenancies set the pace early, we are now seeing healthy enquiry levels among larger tenants. That’s already supporting an increased need for space as tenants work through their longer term flexible working policies, and is expected to lift as the return to CBDs continues,” concluded Tim Molchanoff, head of leasing at Cushman & Wakefield, ANZ.
