Workplace change drives shifting dynamics in CBD office markets

Tenant demand for flexibility the number one factor in ongoing office evolution

The ongoing evolution of the Australian workplace which has seen a significant shift towards flexibility is creating a dichotomy between the country’s two biggest CBD office markets, Sydney and Melbourne. 

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.”
 

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Anneke Thompson

National Director

Melbourne CBD

Anneke began her property career in 2004, and in that time has gained experience across many facets of commercial property including leasing, consultancy, research, feasibility analysis, forecasting, and financing.

Anneke leads the Australian Research team for Colliers International, and as part of this role manages the production of all of Colliers’ Research and Forecast Reports (RFRs), as well as our Colliers EDGE data subscription product. She has a particular focus on office markets – both the Capital Markets and leasing sectors – and contributes annually to the Capital Markets’ teams Investment Review series.

Anneke is regularly called upon to present at property industry forums run by groups such as the Property Council of Australia (PCA), the Australian Property Institute (API) and Property Investment Research (PIR). She has also contributed to a number of panel discussions, and regularly presents to Colliers’ wide variety of client groups.

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Simon Hunt

Managing Director | Office Leasing

Melbourne CBD

As the Managing Director of the Office Leasing Division my team includes over 100 staff and more than 75 leasing operatives across every State and Territory. I have been with Colliers International for 25 years, joining the Office Leasing team in 1993 and worked my way up to Managing Director in 2005.  Along with managing the Office Leasing National Team I hold a number of senior positions within Colliers including a member of the ANZ Executive, Executive Leadership Team and Senior Leadership Team.  I am a Licenced Estate Agent and a member of the Real Estate Institute of Victoria, Property council of Australia and RICS - Royal Institute of Chartered Surveyor.

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Doug Henry

Managing Director | Occupier Services

Sydney CBD

Doug has over 30 years’ experience in occupier and institutional real estate and currently leads the Australian Occupier Services business at Colliers International. That comprises business specialising in occupier needs: tenant advisory, portfolio and transaction management and workplace management services. Doug's focus is on building long term strategic partnerships with major occupier clients and developing a highly coordinated approach to account management and delivering Real Estate solutions that align to business strategy.

Doug's extensive experience in Workplace Strategy, Property Management, Occupier Negotiations and Integrated Facilities Management and Account Management enables him to focus the considerable resources of the Occupier Services team to achieve measurable results for the clients he works with.

Specialties:

  • Tenant Advisory
  • Industrial Advisory
  • Project Management
  • Facilities Management
  • Occupier Technology
  • Outsourcing
  • Workplace Management
  • Account Management
  • Integration of business units
  • Occupier Research
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