Australia’s office market will see a new normalisation of the work from home (WFH) trend next year, as employers strive for the right balance between in-person collaboration and workplace flexibility.
“There’s going to be a new normalisation of WFH with a balanced view to getting people back into the office more and not just working from home all the time,” Greg Preston, Chairman and Managing Director at Preston Rowe Paterson, told ANZPJ.
WFH and workplace flexibility have become standard features in many workplaces since the COVID restrictions were lifted around the country.
Preston said workplace flexibility was important, but added that workers, especially younger ones, could miss out on developing key skills like negotiating if they worked remotely permanently.
“I’m a real stalwart for vibrant cities that are full of people and that hasn’t been the case of late,” he said.
“There’s going to be a growing push to get people back into the workplace to benefit from collaborating and learning together.”
Employers have also been looking for office spaces offering new features and perks to help lure their workers back into the office.
“The needs of tenants are changing,” he said.
“New buildings have got many features to encourage people back into the workplace, while a lot of buildings are adding new features to make them really attractive places to come to work.
“There’s a lot of talk about how offices will be fitted out in the future, so there will be a level of refurbishment.”
It comes as property markets in Australia and around the world face market turbulence and uncertain economic conditions.
Preston said there might be a minor correction in the office market, and it would impact individual buildings differently with newer buildings holding up better than B-, C- or D-grade buildings.
He said the office market would likely tread water this year and potentially into the first half of 2023 but was expected to return to normal when inflation was brought under control and the capital markets normalised.
He said there was a perception that capitalisation (cap) rates had been expanding across office and the other asset classes this year as a result of rising inflation and interest rates.
But deal volumes have fallen this year too, meaning that there has been little sales evidence to measure the full impact on property values.
Inflation has also been impacting the leasing market, especially leases that had fixed increases tied to the Consumer Price Index (CPI).
Landlords holding leases with those fixed increases linked to CPI have seen significant rental reviews lately because of how much CPI has grown.
Marquette Properties’ $420 million acquisition of the Blue Tower complex in Brisbane was one of the biggest office deals in 2022.
Leasing incentives have also increased. Preston said normal market incentives in Sydney would have been in the 15%-25% range a couple of years ago but were currently around 30% and higher.
From a development perspective, the office market has been impacted less than other property markets.
Preston said office developments were typically larger projects than other asset classes and had longer build lead times, so many projects that were already underway before inflation and interest started to rise this year had just continued to roll on.
That said, office projects have been affected by rising construction costs and labour shortages too.
Among Australia’s major office deals this year were Link REIT’s $596 million deal with Oxford Properties to invest in a portfolio of five offices across Sydney and Melbourne, and Marquette Properties’ acquisition of the Blue Tower complex in Brisbane for about $420 million.
In addition, Singaporean CDL and HThree City Australia bought an A-grade office tower in Melbourne’s CBD for $236 million; Centuria and MA Financial Group secured Perth’s Allendale Square office tower for $223 million; and AEW sold an office building in Pyrmont, Sydney to Elanor Investors Group for $185 million.
Read our other 2023 Australian Property Outlooks
2023 Australian Retail Outlook
2023 Australian Industrial Outlook
2023 Australian Residential Outlook
