Half our offices remain empty – will workers ever return?

More than half of Australia’s office real estate isn’t being used, as desk dwellers continue to work from home.

Sep 24, 2020, updated Sep 24, 2020
Once thriving office lobbies, like Grosvenor Place in Sydney, are now empty halls as professionals continue to work from home.(ABC News: Rachel Pupazzoni)

Once thriving office lobbies, like Grosvenor Place in Sydney, are now empty halls as professionals continue to work from home.(ABC News: Rachel Pupazzoni)

One of the first big corporations in Australia to send its workforce home in early March was professional services firm EY.

“We had a really clear view about what we wanted to do and that was saving lives and also saving jobs,” explains EY managing partner for real estate and construction, Selina Short.

It had only been a few years since about a third of EY’s 6500-strong workforce in Australia moved into the company’s new digs on Sydney’s George Street.

But EY’s 23 floors, covering 25,000 square metres of real estate, was all of a sudden sitting idle.

It wasn’t long before almost all of the roughly 18 million square metres of office space throughout Australia’s capital city CBDs was emptied.

A row of high rise buildings set in front of a blue sky.

Sydney’s CBD currently has the nation’s second-lowest occupancy rate after Melbourne. (Photo: ABC News: Rachel Pupazzoni)

Businesses are now trying to figure out what to do with all that space.

“There’s got to be a reason to get out of bed and come into the office,” Short explained, as workers have grown accustomed to the short commute from bedroom to home office.

She says CBD offices will need to offer something more to employees than a desk, chair and computer.

“Offices are 100 per cent going to have to shift and adjust for this,” she said.

“Sitting there [at work] and bashing out eight hours on your laptop — why bother? We can do that at home.”

Death to the office?

While the likes of Zoom and Microsoft Teams have become part of daily working life for professionals in 2020, don’t expect the office to disappear completely.

Dozens of surveys have found a virtual meeting can’t replace the effectiveness of face-to-face meetings and group work, nor is it as good for workers’ mental health as socialising with colleagues in the office kitchen.

EY surveyed 4500 of its employees across Oceania.

A large lobby with 2 concrete pillars on either side, a wooden roof and tan leather chairs.

The once busy lobby of EY’s Sydney building sits empty as most workers remain at home. (Photo: Supplied: EY)

Almost half (48 per cent) want their homes to be a feature of the future office, with 44 per cent saying they want remote working to become the default.

They say they only want to go into the office for specific purposes like client meetings or team building.

That sentiment is global.

Boston Consulting Group surveyed 12,000 of its employees and found 60 per cent want to choose where and when they work, while international recruitment firm Adecco’s survey showed 75 per cent of workers want that flexibility.

When people do eventually go back to the office, they’re going to have more space.

Real estate firm JLL predicts the number of workstations in corporate offices will fall from 91 for every 100 workers, to 82.

A new look office

Office designers agree workspaces have fundamentally changed forever.

“Previously offices saw about 70 per cent of floor space devoted to focus desks,” says Rob Aird, managing director for Unispace, Asia-Pacific.

“We see that dropping quite substantially, to probably as low as 30 or 40 per cent.”

A grey-haired man, wearing a blue jacket, stands with two other workers who are sitting at a table chatting.

Unispace managing director Rob Aird says colleagues will come into the office to collaborate and complete quiet work, like research, at home. (Photo: ABC News: Rachel Pupazzoni)

He says more communal areas for team work will replace the rows and rows of desks we’re used to seeing.

“Things like open plan benches, project areas, team areas for people to work on things together,” he predicts.

He’s already in discussions with businesses about how to redesign their offices.

“The driver that we’re seeing from more progressive clients is that they’re realising they have to get back to the office and they have to create places that attract and retain their employees,” Mr Aird tells The Business.

Office real estate is already losing value

A recent survey by the Property Council of Australia found capital cities where COVID-19 cases are fewer are seeing higher office occupancy rates.

Not surprisingly, Melbourne has the lowest occupancy rate, followed by Sydney.

Nationally, just 46 per cent of the capital city CBD office space that was used before the pandemic is back online.

Chart showing the August office building occupancy level compared to pre-COVID levels, Melbourne CBD is the worst performer.

August office building occupancy level compared to pre-COVID levels. (ABC News: Alistair Kroie)

As CBDs remain mostly empty, office real estate values are already declining.

“For prime grade office buildings, our expectation is in the order of 5 to 7 per cent [falls],” observes Andrew Ballantyne, head of research at real estate firm JLL.

“For secondary grade assets, where we see greater income risk moving forward, we do believe values could fall anywhere between 15 and 20 per cent.”

Tenants are already trying to cut costs.

A man in a grey suit and tie stands in front of a window of a high rise office building.

JLL’s Head of Research Andrew Ballantyne expects office property values to fall up to 20 per cent in the next 12 to 18 months. (Photo: ABC News: Rachel Pupazzoni)

“We are seeing a number of organisations downsize and looking at their real estate footprint, which has led to an increase in what we call sublease availability,” he tells The Business.

One of the big corporate casualties from COVID-19, Qantas, wants to sublet about 25,000 square metres of office space in Sydney, Melbourne and Hobart.

It’s also trying to ignite a bidding war between state governments, announcing it’s considering relocating its Sydney headquarters.

An exodus of businesses will also lower property values.

“Unfortunately, I think a lot of companies may not survive and that will have an impact on vacancy in the CBD,” tips Michael Cook, group executive at property owner Investa.

Fewer businesses will add to the reduced demand for office space.

A man wearing a black shirt and tie sits at a desk working on his laptop.

Investa Group Executive Michael Cook says the office isn’t dead, but it does need to change. (Photo: ABC News: Rachel Pupazzoni)

Cook doesn’t believe the office isn’t dead, but he acknowledges the relationship between landlords, like Investa, and their tenants will need to change.

“As landlords, we have to look at ways and means of being a little more flexible in how we allow tenants to contract and expand,” he says.

With social distancing for now a continuing part of our lives, offices like EY’s will continue to sit mostly empty.

“We just couldn’t fit all the people back into the EY offices tomorrow, even if they all wanted to come in,” says Short.

“We just don’t have the space.”

From office half empty — to overfull.

– ABC / Rachel Pupazzoni

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