While the workplace will likely look different in future from the way it did before the pandemic, with employees becoming accustomed to working from home, the office will continue to play a pivotal role.
Throughout the COVID-19 pandemic, companies such as Australia Post, law firm Baker McKenzie and Facebook have maintained that city offices will continue to be part of their future workplace strategies, pointing to the benefits for relationships, innovation and business culture created by having physical space in which people can interact.
The difference however is that the office and home will be recognised as places where work can be equally productive.
“COVID-19 has forced us to think not only about how we build for the immediate future and return to our workplaces, but also how we might reshape our environments in quite a different and exciting way,” says Kate Langan, group general manager of property at the bank ANZ, acknowledging that a move to flexible and home working had already been happening gradually at the company before the pandemic.
Re-evaluating real estate
With the home office taken into consideration, the need for current office space is being re-evaluated. Some of Australia’s largest companies have confirmed they will be looking to reduce their office footprints by 20–50% as they optimise their real estate for new ways of working and aim to cut costs.
In mapping out their future property strategies, companies are looking at 1 of 3 hybrid workplace scenarios, ranked by how extensively they embrace collaboration, according to Michael Greene, JLL’s head of tenant representation – Australia.
The standard model was the pre-pandemic norm for most businesses, acknowledging that people typically come into the office even to do solitary work, and meeting rooms in the middle are for collaboration when needed. The new normal model recognises that employees are attending the office 2-3 days a week, but solitary work is done mostly at home, and so office design is geared further towards collaboration. Finally, the progressive model assumes that employees are only attending the office 1-2 days a week and the office is predominantly a place to interact and collaborate with colleagues. Hence there are fewer desks and a greater variety of spaces to meet.
“Clearly things are not going to be the same as they were. But just how different workplaces will be depends entirely on businesses’ needs, work processes and employee appetite for returning to the office,” says Greene. “They’ll have three key goals in mind: giving their people the tools and the space to do their best work, keeping their employees safe and healthy, and being a profitable organisation.”
"In mapping out their future property strategies, companies are looking at 1 of 3 hybrid workplace scenarios"
Trying new models
Along with the emphasis on alternative places of work, the pandemic has also prompted concerns about well-being and safety, as well as disdain for commuting – half the respondents to JLL’s workplace experience survey 2020 said “less or no commute” had been the best part of working from home. These trends are likely to accelerate the adoption of the hub-and-spoke office model, which describes a company having a head office based in a significant location such as a central business district (CBD) and several satellite offices, including flexible space facilities.
Sydney’s topography includes multiple well-established commercial hubs, such as Parramatta, Macquarie Park and North Sydney, making the hub and spoke a viable approach, according to JLL’s head of research – Australia, Andrew Ballantyne.
“Over the past 10 years, we’ve seen the dispersion of Sydney’s population into new growth corridors, leading to a 15% increase in the average commute time, and the realisation that people would no longer be within a 30-minute commute to the CBD.
“In a competitive business landscape, where attraction and retention of highly skilled workers is important, we’ve seen companies split their tenancies between the CBD and Sydney’s other commercial hubs over the past few years, and it’s a trend we expect to accelerate.”
National Australia Bank and law firm Herbert Smith Freehills are among the companies that have already spread their offices between Sydney CBD, Parramatta, and Macquarie Park, respectively, while some traditional business-park tenants from the latter site have taken enterprise agreements with flexible-space operators in the CBD and fringe.
Investors look to metropolitan markets
Where tenants go, developers follow. With metropolitan markets generally underpinned by high-quality tenants – particularly government, professional services and healthcare-related organisations – the investment demand outlook is strong.
New offshore capital sources are also exploring opportunities across metropolitan office markets, Ballantyne says: “The spread between property yields and government debt is wide, making real estate with reliable income from strong leases relatively attractive to investors."
Centuria is one of the biggest players in the metro market, with a A$2.1bn office portfolio, and fund manager Grant Nichols notes that tenants are paying closer attention to worker satisfaction, particularly in the light of COVID-19. Location plays a key role in this. “Put simply, workers want to be in offices located close to their homes, avoiding long commutes and preferably with easy access to public transport,” he says.
Businesses await clarity
It is generally considered too early to predict whether COVID-19 will cause structural changes to offices, but companies are trying to conform to new ways of working. This includes heightened cleaning regimes and spaces that can be configured around the individual requirements of tenants.
In the short term, CBD office leasing markets are largely in a state of suspended animation as businesses opt to take short-term lease extensions while they await clarity over the next normal.
For those engaging with agents, a clear trend is emerging in the increasing demand for fitted office space. More than 80% of office leasing inquiries since the start of the pandemic have been for spaces that don’t require any design or construction efforts, an increase of roughly 30% from before the crisis, according to JLL data.
“Most businesses can’t get board approval for a new office that requires upfront capital, so they’re pushing for a cost-neutral move with flexible lease terms,” says Alexandra Harper, office leasing associate – Victoria, JLL. “And with rising vacancy, landlords are moving to shorter, more flexible lease terms of 1–3 years, or installing speculatively fitted space, to reflect tenant demand.”
"CBD office leasing markets are largely in a state of suspended animation as businesses opt to take short-term lease extensions"
Fast-tracking innovation
Building and facilities managers are getting smart about navigating adjusted workplace densities and distancing requirements, turning to technology and data to understand who is in what space, for how long, and at what time. These insights are vital not just for managing the flow of people and use of office space, but also mapping out future workplace strategies.
Meanwhile, COVID-19 is driving the property sector to innovate fast in order to promote additional amenity, cleaning technologies, and social distancing, with the aim of giving tenants and their employees the confidence that they can return to their offices safely.
AMP Capital and GPT, with their Darling Park office, and Dexus, with its Gateway office, both in Sydney, have made considerable investment in biometric, UV and anti-microbial film technology – used widely in operating theatres, dental surgeries, and the food and transportation sectors – to increase the hygiene and safety of their buildings. The UV technology sanitises escalator handrails, while anti-microbial clear film is used on door handles and high-touch surfaces.
Gateway, meanwhile, is Australia’s first contactless-entry office, using biometric hand-scanning technology to open security gates and lockers, program lifts, and access the car park.
In other offices, Australian developer Charter Hall is accelerating its move towards contactless offices, with specific focus on toilets and amenities.
“At the moment, there are on average 9 touch points when using a cubicle in a toilet, and we're looking at design now to get that down to 3,” says Andrew Borger, head of office development services at Charter Hall. “And we think also that with further technology we can get that down to zero. So I think we're looking to fast-track that into our new developments as a starting point.”
Dispersed offices, collaborative design, and whizz-bang technology are not trends that have been triggered by the pandemic, but it has accelerated their adoption by an expanded section of the property sector. The true catalyst has been the generational shift taking place inside our workplaces, says Ballantyne.
“The commercial office sector has evolved from being viewed as a product to being seen as a service. This mindset shift by building owners, managers and developers has led to a more customer-centric approach and an understanding of the important role real estate plays in shaping an organisational culture.
“The intrinsic link between the physical asset – base building and tenancy fit-out – and culture has led to an evolution in occupier requirements. Organisations are ultimately responding to the needs of their employees, and these changes are accelerating as millennials and Generation Z become a larger part of Australia’s workforce.”
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"Building and facilities managers are getting smart about navigating adjusted workplace densities and distancing requirements"