Tow­er­ing in­fer­nos of cash



Al­most $50bn could be wiped from the value of com­mer­cial of­fice prop­er­ties across Aus­tralia’s ma­jor cities as a surge in the num­ber of work-from-home staff forces em­ploy­ers to re­assess how they op­er­ate their busi­nesses and damp­ens de­mand for a cor­po­rate foot­print in cen­tral busi­ness dis­tricts.

Prop­erty an­a­lysts pre­dict the value of the na­tion’s of­fice tower sec­tor — cur­rently es­ti­mated at $318bn — could fall by as much as 15 per cent over the next year be­cause of the shift away from highly cen­tralised CBD op­er­a­tions to stay-at-home work.

The value of Syd­ney’s of­fice space — at $165bn — makes up the ma­jor­ity of the na­tional to­tal.

A fall in Syd­ney val­ues of 10-15 per cent, as pre­dicted by Mac­quarie Eq­ui­ties, would amount to losses of up to $25bn for the city’s of­fice prop­erty own­ers.

The Mel­bourne of­fice mar­ket is val­ued next high­est by JLL at $86bn, fol­lowed by Bris­bane ($32bn), Perth ($16bn), Can­berra ($12bn) and Ade­laide ($7bn).

Citi prop­erty an­a­lysts Su­raj Neb­hani and Adrian Dark pre­dicted the value of build­ings in larger CBDs could fall by more than 15 per cent but said the slide was un­likely to reach the 20-30 per cent slumps of pre­vi­ous bad cy­cles.

Although Aus­tralia ap­pears to be far­ing bet­ter than many na­tions in com­bat­ing COVID-19, its city of­fice va­can­cies are set to bal­loon over the next two years, with rents likely to be slashed as a re­sult.

Col­liers In­ter­na­tional has said the cost of rent­ing could plunge by 13.5 per cent in Syd­ney’s CBD by next March, with Mel­bourne rents to be off by 7.1 per cent and Bris­bane edg­ing down 0.7 per cent, but it said of­fice va­can­cies would not hit their peaks un­til at least two years down the track.

Mr Neb­hani and Mr Dark said the Syd­ney and Mel­bourne of­fice mar­kets had en­tered the coro­n­avirus pe­riod in a strong po­si­tion, with rents at near his­toric highs and very low va­cancy lev­els, but this was set to change.

While an­nual rises “em­bed­ded” in most rents of­fered some short­term fi­nan­cial pro­tec­tion for land­lords, the Citi an­a­lysts said in­vestors were wor­ried about losses from rent waivers or de­fer­rals ne­go­ti­ated so far with ten­ants af­fected by the eco­nomic im­pact of COVID-19.

Many large city of­fices in Syd­ney, Mel­bourne and Bris­bane hope to re­open next week, with about 25 per cent of staff end­ing iso­la­tion at home and re­turn­ing to their desks.

Up to half of the na­tion’s CBD of­fice work­force could be back by mid to late June — but only if there are no sig­nif­i­cant virus out­breaks that would re­quire the reim­po­si­tion of tough gov­ern­ment re­stric­tions and stall the staged start-up.

Com­mer­cial ad­vi­sory firm Her­itage Prop­erty Part­ners said COVID-19 was the cat­a­lyst for ten­ants to shift to re­mote work­ing. As a re­sult, the city of­fice mar­ket had “hit an in­fec­tion point that may al­ter de­mand and pric­ing fac­tors for years to come”.

Her­itage said while some em­ploy­ees were “long­ing to re­turn to the of­fice”, busi­nesses had re­alised the ease and ef­fi­ciency of cut­ting out daily com­mutes and op­er­at­ing re­motely.

As cost re­duc­tions be­came a key con­cern, re­mote work­ing of­fered the op­por­tu­nity to re­duce the of­fice “foot­print” — and even “big play­ers” were learn­ing to live with­out go­ing into the of­fice.

How­ever, Mr Neb­hani and Mr Dark said many com­pa­nies had reser­va­tions about the “work from home” model.

“We don’t see a mean­ing­ful por­tion of the work­force mov­ing to work from home as a per­ma­nent ar­range­ment,” the Citi an­a­lysts said.

“We be­lieve that pro­duc­tiv­ity could be ham­pered and that

col­lab­o­ra­tion in work­places is hard to re­place vir­tu­ally. Many em­ploy­ees’ house­holds are also not set up for work­ing from home on a long-term ba­sis.”

Michael Tooma, man­ag­ing part­ner of law firm Clyde & Co, said work­ing re­motely had been a “seam­less” ar­range­ment for his staff but most were “bust­ing” to re­turn to the of­fice, and he be­lieved noth­ing beat face-to­face meet­ings, col­lab­o­ra­tion and the in­for­mal “so­cial tempo” of the of­fice.

City plan­ning firm Ur­bis be­lieves COVID-19 is a test of the re­silience of Aus­tralia’s cities, in­clud­ing com­mer­cial of­fice space, and they could “look dif­fer­ent” af­ter­wards.

Com­pa­nies still face a big chal­lenge re­sum­ing op­er­a­tions be­cause of dis­rup­tion caused by the re­quire­ment they con­tinue to fol­low so­cial-dis­tanc­ing rules.

Work­ers face a po­ten­tially chaotic daily bat­tle com­mut­ing to and from city jobs on public trans­port, with de­lays and long queues at bus stops and train sta­tions be­cause of se­vere pas­sen­ger lim­its.

Man­agers will dis­cour­age staff from leav­ing the of­fice dur­ing work­ing hours for lunch or cof­fee, and yet of­fice kitch­enettes will be closed as part of in­fec­tion-risk mea­sures.

With em­ploy­ers en­cour­ag­ing more of their staff to avoid the com­muter crush by driv­ing to work, an­a­lysts pre­dict in­creased traf­fic con­ges­tion and park­ing dif­fi­cul­ties.

Adrian Tay­lor, chief ex­ec­u­tive of prop­erty as­set man­ager Char­ter Hall, said a smooth re-en­try to city of­fice spa­ces would re­quire many em­ploy­ers to adopt a “split­teams” strat­egy, with stag­gered start times for staff where it was pos­si­ble while oth­ers con­tin­ued work­ing from home.

Mr Tay­lor said some com­pa­nies might in­crease the de­cen­tralised “hub and spoke” model in which cer­tain num­bers of em­ploy­ees would re­main at CBD head­quar­ters while oth­ers worked closer to home at sub­ur­ban branch of­fices.

The big­gest dif­fi­culty for em­ploy­ers tri­alling re­mote work­ing would be for new staff form­ing work re­la­tion­ships and com­ing to grips with com­pany cul­ture, he said.

Mr Tay­lor, whose firm man­ages a $20bn port­fo­lio ac­count­ing for 1.5 mil­lion square me­tres of of­fice space, said he ex­pected of­fice floors would be cleared of much fur­ni­ture to en­sure so­cial dis­tanc­ing at desks. More strin­gent of­fice clean­ing, at higher cost, would be in­tro­duced to help re­duce the risk of in­fec­tion.

Over the past 25 years, Mr Tay­lor said, of­fice den­sity ra­tios had more than halved to cope with in­creased num­bers of staff work­ing closely in open-plan en­vi­ron­ments from 20-25sq m to 10-12sq m per em­ployee.

“To ob­serve so­cial dis­tanc­ing, that could have a long-term im­pact of go­ing back up to 1516sq m per per­son,” he said.

“I would ex­pect to have re­duced de­mand over­all (for of­fice space) in the short to medium term on the ex­pec­ta­tion of any eco­nomic down­turn. But with this dif­fer­ence — the mea­sures needed to en­sure dis­tanc­ing may mean city of­fices need more space. It’s a con­tra­dic­tion.”

Aus­tralia’s CBD of­fice space cov­ers 17.89 mil­lion square me­tres, says mar­ket ad­viser JLL. With va­cant space re­ported at 1.46 mil­lion square me­tres be­fore the cri­sis be­gan, JLL ex­pects it to rise to 1.88 mil­lion by the end of this year, a jump of al­most 30 per cent.

Ur­bis di­rec­tor Nisha Rawal said new build­ings in CBDs had been aim­ing for space ra­tios of 8-10sq m per worker — but this ra­tio was likely to in­crease over the long term to cope with so­cial dis­tanc­ing.

Ms Rawal said COVID-19 pre­sented an op­por­tu­nity to bring work to where em­ploy­ees lived: ei­ther by cre­at­ing satel­lite of­fices in sub­urbs or al­low­ing more peo­ple to work from home.

Ur­bis says en­trench­ing re­mote work­ing could boost pro­duc­tiv­ity in the ser­vice sec­tor by 5 per cent a year, adding $100bn to GDP. Ms Rawal said the pro­jected pro­duc­tiv­ity in­crease was based on work­ingfrom-home trends, and tak­ing into ac­count the elim­i­na­tion of stress work­ers ex­pe­ri­enced com­mut­ing long dis­tances, cur­rently es­ti­mated to cost the econ­omy $12bn a year.

Dexus, the na­tion’s largest listed city of­fice land­lord, ex­pected an ac­cel­er­ated re­turn of ten­ants to its city com­mer­cial premises but only pro­vid­ing 1.5m dis­tanc­ing was guar­an­teed.

The com­pany’s ex­ec­u­tive gen­eral man­ager, Kevin George, said prepa­ra­tions were un­der way for in­creased sani­ti­sa­tion on build­ing floors and lob­bies.

Mr George urged em­ploy­ers to em­brace more flex­i­ble work­ing hours to “avoid crushes at peak work times” in of­fice lob­bies.

Land­lord In­vesta said it had ex­pected more Syd­ney and Bris­bane ten­ants back in the of­fice last week but many were con­strained by the lack of public trans­port op­tions. In­vesta has set up “fea­si­ble and prac­ti­cal” guide­lines, which even in­clude how to en­ter of­fices across the $12bn of tow­ers its man­ages.

In­vesta group ex­ec­u­tive Sally Franklin said the com­pany was en­cour­ag­ing the use of re­volv­ing or au­to­matic doors.

“We’re also sug­gest­ing ten­ants call lifts or touch sur­faces with ob­jects other than their hands.”

Pro­hib­i­tive re­stric­tions on the num­bers of peo­ple per­mit­ted in of­fice lifts at any one time were scrapped ear­lier this week when com­mer­cial land­lords and em­ploy­ers suc­cess­fully ar­gued to Safework Aus­tralia that such rules would cre­ate havoc in work­places.

While there is no longer an edict that each per­son in a lift has 4sq m to them­selves, Safework’s re­vised reg­u­la­tions de­mand that peo­ple “still en­sure, as far as they rea­son­ably can, that they main­tain safe phys­i­cal dis­tance in lifts and lift wait­ing ar­eas”.

In­vesta runs an of­fice em­pire with $12bn worth of tow­ers and says al­most 60 per cent of com­pa­nies in­tend to adopt a stag­gered re-en­try of their work­forces. Half will use their of­fice space dif­fer­ently but most won’t change their fit-outs.

“They’re re­ally prac­tis­ing so­cial dis­tanc­ing and us­ing their cur­rent fit outs,” Ms Franklin said.

‘We’re sug­gest­ing ten­ants call lifts or touch sur­faces with ob­jects other than their hands’



Cities in flux … Syd­ney’s cen­tral busi­ness dis­trict, which could lose up to $25bn in value as some com­pa­nies shift to a work-from-home model,

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