Sydney CBD office workers return
Sydney CBD workers are returning to the office in droves as commercial office owners remain committed to fostering Covid-safe work environments. Image – Canva
  • Office occupancy on the up, with Perth coming in at 80%, according to PCA data
  • 3 in 4 co-working spaces to expand in 2023
  • Revenues can be up to three times traditional office leases

With lockdowns, mask mandates, and other restrictions an almost forgotten memory of 2020 and 2021, offices are making their comeback.

The Property Council’s recent office occupancy report found many CBDs are seeing a strong return to the office.

Perth recorded the strongest office occupancy rate in the country at 80% of pre-Covid levels, with Adelaide close behind at 74%, Brisbane 67%, Sydney 59%, Melbourne 57%, and Canberra 52%.

Overall level of office occupancy as a percentage of pre-Covid rate

Source: Property Council of Australia survey.

This is despite wider worries over mass moves to work from home, with the figures perhaps allaying the fears of some over the future of offices.

Having said that, how the office will look and function continues to evolve, with the co-working or flexible workspace sector continuing to see rising popularity.

Co-working space demand rises

While Perth goes from strength to strength, co-working spaces and work-from-home are still prevalent in the minds of many elsewhere in the country.

Traditionally the preserve of startups, co-working is proving to be an enticing third option for some workers. For some companies, flexible spaces have been used as a transition back to normal office work, with other offices completing refurbishments to include more flexible spaces and less “traditional office” space.

Even tradies now have a co-working space.

The demand was clearly growing in November of 2021, The Property Tribune reported, with Victory Offices then telling The Property Tribune that people missed some aspects of the office that you simply cannot get at home, neither can people easily ‘switch off’ from work.

Reports from Essensys, and The Instant Group, both demonstrate a strong appetite for the format.

Demand Q3 2022 (compared to Q3 2021)
Sydney Up 14%
Melbourne Up 14%
Brisbane Up 31%

Source: The Instant Group.

Essensys’ report, created in collaboration with Flexible Workspace Australia, found that over four in five (85%) of survey respondents wanted to work in a flexible workspace near their homes, at least as much as their primary offices. This was particularly the case for those under 40 years old.

The survey also found that well over half of Australian office workers (57%) said their offices were not equipped for a flexible, seamless, agile work experience.

Finally, over 90% of millennials and Generation Z employees said they experienced a gap between the technology currently offered in their office and what’s needed to do their jobs effectively.

Five reasons for the rise of flexible workspaces

According to the Instant Group, 2023 will be the catalyst for co-working. Five of the opportunities The Instant Group identified in its 2023 predictions include:

  1. Sharp rises in demand, with almost three in four operators looking to expand,
  2. Higher revenues from flexible workspaces will attract more landlords to the format,
  3. Flexible offices will be used more often, making up a quarter of the office market by 2030,
  4. Premiums on flex workplaces to be paid where ESG benefits can be derived, and
  5. Flexible spaces to be chosen over traditional offices, despite rising costs and recession concerns.

Demand for flexible workspaces is on the rise, majority of operators looking to expand

The report said that, globally, almost three-quarters (74%) of flexible office operators are looking to expand, with the prime area of focus, city centres.

Instant’s The Future of Flex report found that global occupancy rates have risen over the past year, with over two in five (44%) of operators achieving occupancy rates over 80%, globally.

Half of the APAC region operators were able to achieve over 80% occupancy, with an even split across occupancy levels of 0%-60% and 61%-80%.

The report also found that 39% of operators, globally, are looking to expand in city centres, with the 48% of APAC operators looking to expand in city centres.

Those figures are much lower in the UK and US, with 36% and 28% of operators, respectively.

Suburban expansion is markedly lower, 28% of global operators are looking for opportunities in suburbia, with only 34% of APAC operators considering a move to the suburbs.

Flexible workspaces can attract triple the rates of traditional leases

The report also found that landlords are increasing their exposure to flexible workspaces, compared to traditional office leasing, because not only are clients increasingly asking for it, the revenue potential can be substantially higher.

Instant’s data found that annual revenue can more than triple the rates of traditional leases, the caveat of course is that the risk is higher than traditional leasing.

Data showed that 36% of landlords planned to offer flexible spaces by 2025, while 17% are looking to lease their space to an office provider and form a revenue-sharing partnership. Over half of landlords surveyed also said they expected between 16% to a quarter of their portfolios to be flexible workspaces.

Among the other motivators noted by landlords in the survey:

  • 29% generate additional revenue
  • 18% secure tenants at an earlier stage in their growth
  • 18% provide additional services for existing and new tenants
  • 18% build a flexible workspace brand to add overall value
  • 12% understand more about their customers
  • 5% other

More users in the near term, with space as a service to comprise 25% of the office market by 2030

For clients, this will mean greater availability of space in more locations that better matches their needs. The office market will have to become more “productised” in order to become easier to “consume” by customers eager for new experiences and different types of workspace usage, said Instant Group.

Companies have entered the “test and learn” phase of the workspace revolution. Long-term commitment to leases has been abandoned. In its place has come radically increased interest in flex options like coworking.

But this interest in the shorter, commitment-free areas of flex is a fleeting reaction to wider systemic changes in commercial real estate. Instant estimates that coworking supply in its truest sense – the day passes, coworking memberships and super-flex elements of the sector – will increase to encapsulate 5% of the total office market (from less than 1% today).

The broader flexible office market, which includes private office space, will grow to 30% of the total office market. The biggest segment will come from the “new” CRE with a potential valuation of 1.3 trillion dollars.

The “new CRE” is defined as “workspace-as-a-service” – agile adoption of workspace on lease-free terms that allow companies to scale. For customers, this will mean more choice in more locations as their employers seek to retain the best staff in prime locations. But this space will be bought on agile terms.

For the end user, it will be a branded, optimal experience, but for real estate teams it is a commitment-light, fast-to-market alternative.

Net zero commitments to attract a premium

IEA (2022), as cited in the report, notes that the built environment accounts for 40% of global carbon emissions.

It is also a growing business necessity to address sustainability, without which, investors and customers are increasingly unlikely to purchase goods or services from that company.

In practice, this means that operators will be more likely to partner with landlords, suppliers, and wider stakeholders to mitigate their carbon footprint, as investments will be tied to sustainability credentials. Instant said corporates will be willing to pay a 10% to 15% premium for a flexible workspace that enables them to hit their ESG targets. While previous certification metrics were used (LEEDS, for example) to divulge an office’s sustainability information, new frameworks are now in place that will make reporting on sustainability as commonplace as reporting on tax.

These frameworks, which are now installed and acknowledged globally, are SBTi (the Science-Based Targets Initiative) and CDP (formerly the Carbon Disclosure Project).

Rates increase, recession likely, but flexible working still attractive

Instant said that despite the flexible workspace rates likely rising by 5% to 10%, a looming recession, and wider cost-cutting, companies are still looking towards co-working spaces as a solution.

The company also said the average company is predicted to downsize by circa 25% within the first three years of taking an office, so having the ability to right-size in line with utilisation not only delivers cost savings but also allows companies to drive efficiencies while investing in quality spaces.

Also revealed: employers typically have visibility of 85% of the true costs of their office, with companies no longer able to afford “gambling” the 15%, and will likely look to flexible working to balance the books.

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