Tenant demand for flexibility the number one factor in ongoing office evolution
According to Colliers International’s H1 2018 CBD Office Research & Forecast Report, the drive towards flexibility is the change that has had, and will continue to have, the greatest impact on the dynamics of Australia’s key office markets.
Simon Hunt, Colliers International Managing Director of Office Leasing, said over the next supply cycle, landlords that proactively met the demand for customer-focussed and flexible working environments – with features such as shared client facilities, customer experience technology platforms, expansion space, and health and wellness spaces – will attract and retain the country’s top occupiers, and in turn, build the most attractive investment portfolios in the market.
“While recently released vacancy figures tell the story of supply and demand in the major office markets around Australia, our view is that the most significant change impacting office markets currently is occupiers’ drive towards flexibility,” Mr Hunt said.
“Over the last two years in particular, the relationship between tenant and landlord has become more about customer and provider, as major corporates view their accommodation strategy as a key driver in the changing way they do business, and indeed interact with their own customers.
Anneke Thompson, Colliers International National Director of Research, said while the drive towards customer-focussed working environments was a market-wide phenomenon, CBD office markets were also being very much impacted by local dynamics.
“The exceptional employment growth that we are seeing in most states isn’t necessarily flowing through to good demand across the country,” Ms Thompson said. “In Sydney, net absorption over the second half of 2017 was a subdued 345sqm, although the vacancy rate still dropped from 5.8% to 4.6%, due to the withdrawal of almost 100,000sqm of space – predominately in the CBD core precinct.
“Our view is these net absorption numbers are hiding underlying demand, which is being absorbed by increased use of landlord-owned shared facilities, co-working spaces and by more efficient use of existing space.”
In Melbourne, the education sector in particular was driving high demand, and was also largely responsible for demand outperforming other CBD markets.
“An analysis of Colliers International enquiry data over 2017 tells us that while only 4% of all enquiry nationally was from the education sector, almost 8% of enquiry in Melbourne was from education users,” Ms Thompson said.
In fact, the education sector was the second largest source of enquiry in Melbourne, behind Business Services. Education is also countering much of the efficiency impacts that are reducing floor space ratios for other corporate users, as the sector is a big user of space.”
Mr Hunt said that according to analysis undertaken using Melbourne City Council CLUE data, education users typically demanded around 60sqm of office floorspace per education worker, given that space was required for both students and staff.
“This is a far cry from the reduced floorspace ratios we are seeing across the legal, finance, government and communication sectors,” he said. “Adelaide is also a market which has experienced positive net absorption over the past year, with the education sector a key demander of space here as well. Over 2017, education-related tenants accounted for 8% of all enquiry – the same proportion as Melbourne.”
Doug Henry, Colliers International Managing Director of Occupier Services, expected the appetite for flexible space among office tenants would continue to grow in 2018.
“Based on our experience with occupier clients across Australia, flexible workspace and shared facilities within office buildings has become increasingly popular, if not a requirement, amongst tenants and particularly with larger organisations,” Mr Henry said.
“Long lease terms are becoming a hindrance and by utilising flexible workspace an occupier can often minimise risk and cater for growth while ensuring access to third spaces, meeting rooms, event areas and training rooms.
“We’re seeing cases where organisations have taken their accommodation entirely within a third party flexible environment.”