New modelling from Cushman & Wakefield suggests that widespread working from home could result in a net decline of 5% to 15% in Australian office tenant demand over the next three to five years.
New modelling from Cushman & Wakefield suggests that widespread working from home could result in a net decline of 5% to 15% in Australian office tenant demand over the next three to five years. However, strong employment growth and additional space needed to accommodate new workplace strategies mean that the long-term impacts of remote working are likely to be absorbed by 2026.
Data from Cushman & Wakefield’s bespoke analysis tool1 shows fewer than 15% of Australians want to be in the office every day or nearly every day, while half want to attend the office between one and four days each week. This indicates that as working from home persists, most tenants will have fewer staff in the office leading to lower occupancy rates.
Modelling shows that at a relatively high occupancy ratio of 80%, which is based on all staff working from home one day per week, and assuming no change to workspaces, the workforce would need to grow by 24% to offset the reduced space requirement.
There are two distinct forces offsetting the impact of remote work on office tenant demand. The first is strong predicted employment growth. Based on RBA employment forecasts in 2022 and longer-term Deloitte Access Economics predictions, employment gains in major city centres of more than 10% are expected by 2026.
Another factor impacting occupancy rates and space demand is a redistribution of space from individual desks to more interactive workspaces. Amid low unemployment, the incentive to retain talent and drive productivity by improving workspaces with more amenity and collaborative spaces, is expected to support demand for office space. Based on the average of four scenarios, this will reduce the impact on declining occupancy ratios by 10.2%.
Cushman & Wakefield Director, Strategic Consulting, Australia & New Zealand, Chris Marrable, said: “Due to strong employment growth, changing space utilisation and the war for talent, we believe that WFH will not lead to large falls in occupancy across office markets in the medium-term. Our base case scenario is an overall reduction in space demand from more agile working in the order of 5% to 15%."
"The war for talent and flight to quality will motivate occupiers to reengineer the office experience, whilst landlords should ensure their properties have excellent amenity with the flexibility to adapt to changing tenant needs."
Head of Leasing, Australia and New Zealand, Cushman & Wakefield, Tim Molchanoff, said: “We have seen an increasing trend towards tenants seeking to uplift their space to attract and retain good talent and encourage employees back into the office.”
“While the smaller tenancies set the pace early, we are now seeing healthy enquiry levels among larger tenants. That’s already supporting an increased need for space as tenants work through their longer term flexible working policies, and is expected to lift as the return to CBDs continues.”
John Sears, Head of Research Australia and New Zealand, Cushman & Wakefield, said: “Given the average CBD weighted average lease expiry (WALE) is about five years, many tenancies could move through a first iteration of more agile working in the next leasing cycle. When coupled with strong employment growth, we should see the drag on tenant demand from WFH wash through by 2026."
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[1] Cushman & Wakefield’s Experience per Square FootTM (XSF) surveyed 60,000 respondents 2020-21, https://www.cushmanwakefield.com/en/insights/experience-per-square-foot-...