Australia’s office sector set for a bumpy recovery in 2021

There is a lot riding on getting Australians back into the office amid the ongoing coronavirus crisis. Personally, my superannuation has exposure to office property. I also love our CBDs and want them back to the vibrant and exciting places they once were.

However, I don’t particularly want to go back to the office myself. I’m happy to go in occasionally and see teammates and work colleagues. But the more time I spend working from home, the more I realise how productive my day is without a long commute. I am getting an awful lot of work done without sitting in the office and I would guess I am not the only Australian feeling this way.

Many companies have now realised that having all employees in the office is not necessary. Many jobs can be done from home most of the time and, although I am personally experiencing screen fatigue, Zoom and other similar platforms make it easy for teams nationally and globally to connect.

Working from home is not for everyone. Some people’s homes aren’t set up appropriately and having young children at home can make it difficult to get work done. Company culture is also hard to maintain when half of a business’s employees are at home. For younger people, it can be hard to grow a career when you aren’t surrounded by your peers. These are just some of the issues human resources teams are currently facing. The future of work is hard to work out.

Vacancy rates set to soar

While shopping centres are being touted as the biggest commercial casualty of the health crisis, the office sector could fare worse. We don’t yet know the severity of the fallout in terms of office demand in the aftermath of 2020, but new figures from the Property Council of Australia suggest there will be a sharp rise in vacancies this year. According to the figures, office vacancies in Australia’s CBDs jumped from 9.2% to 11.1% in the six months to January 2021 – the highest level since 2015.

Working from home isn’t practical for all. Picture: Getty

The shift to online shopping, which was accelerated during the pandemic, was already happening pre-COVID, and therefore shopping centre owners had already been working on new ways engage shoppers. But for the office sector, COVID-19 caused a structural break to the way we work and companies had no time to prepare for their entire workforce to be working from home.

While the headline story is that office vacancies will rise, there will be nuances between markets. Companies will need less space, but a flight to quality will happen as employers look to encourage people back into the office. Suburban offices seem to be faring the best, as are offices in Canberra.

Investors are keen on offices in Sydney and Melbourne. Picture: Getty

Investor demand doesn’t seem to be taking a hit

A 2021 Investment Intentions survey, undertaken by the Asian Association for Investors for Non-Listed Real Estate Vehicles (ANREV), the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) and the Pension Real Estate Association (PREA), found the office sector was the number one sector institutional buyers were interested in. Office markets in Sydney and Melbourne topped the list in the Asia Pacific region.

Not unlike the residential market, it appears low levels of tenant demand and declining rents are not deterring interest from office property buyers.