We haven’t yet seen the full impact of the pandemic on the CBD office market. Companies are still adjusting to the new working landscape and leases are measured in years, with 3-6 years plus options and fitout investment to consider. However findings due to be released by Infrastructure Australia in December will show a 10% reduction in CBD workspace demand. This reduction is largely a response to the pandemic and the changes it has triggered within the workplace. Such changes include the shift to Working From Home, a new attitude to office space and issues around health and safety.
The release of the IA’s findings will likely coincide with the middle and end of many commercial leases and more tenants will begin to question the CBD office model. As tenants start to reduce their footprint, there will be a cumulative effect resulting in far less office demand in the CBD.
But does this mean your company should leave? Before you pack up to relocate elsewhere, there’s a few things you may want to consider:
It is undoubtedly a tenant’s market and will continue that way into 2022 and beyond.
Because the building supply pipeline takes 3-5 years from planning to completion, tenants can enjoy a long period of excess supply, including projects that commenced before the pandemic. Excess space means a flight to quality, with greater choice and a likely reduction in your leasing costs. Tenants can upgrade to A grade buildings in a bid to attract their staff to the office. Increasing incentives, downward pressure on rentals and a likely reduction in your footprint means that you can consider better quality buildings in the CBD.
Everything about your office, from its design to its location, should support the needs of your staff. Demand is already shifting outwards to the suburbs in response to the difficulties associated with commute times and proximity of workers to the CBD. There may also be an option to downscale your CBD office while using alternative workspaces in other areas. A smaller CBD office could still be used for social, culture, communication and collaborative purposes by staff.
The current preference for new and upgraded buildings is mostly due to health and safety concerns around COVID19. The older buildings in the CBD will be withdrawn from the market or upgraded or re-purposed. This leaves many newer and “healthier” buildings to choose from, with features like fresh air provisions, open air spaces, end of trip facilities, lower density and efficient services. If your current building cannot provide such features, this is your opportunity to move to a CBD building that can. Landlords are also undertaking speculative fitouts to attract new tenants, which means you could potentially find a turnkey space in the CBD without obligations or hard decision making.
The Flexibility Of Your Lease
Flexibility in the lease structure itself is becoming more common as demand falls. Landlords need to find ways to attract tenants and are more open to flexible terms such as shorter leasing, covid clauses, providing 3rd or shared spaces, co-working and subleasing. If your current landlord is not offering flexibility, you should look at other CBD buildings that do.
Is your brand enhanced by the heritage and prestige of a CBD location? Perhaps the centrality and associations of this location is valued by your clients and staff? Or maybe this is no longer the case. Some companies have found that they are “re-connecting” more with their values and able to rebuild their culture as they move into lower density areas that allow staff to spend more time at home or work than in traffic.
The CBD may be empty right now but it will return to life. Landlords, their buildings, companies and their employees are adapting to the changes created by working from home and this could actually result in a better and more purposeful CBD.
BRM works with companies to help them determine how much space they need and where that space should be located to best support their direction and business needs. After working with your staff through customised focus groups, we create and deliver a property strategy that will prepare you for the post-lockdown working landscape.
To understand how you can take advantage of an evolving CBD as a tenant, reach out to BRM’s property team to discuss your situation.
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