Key trends in commercial property
With so much hype around the residential property market, it’s easy to forget the impact that 2020 had on the commercial property market, particularly commercial office space in our major cities.
Whilst impacts were felt in many industrial and warehousing sectors, it’s office space that was most severely impacted and where we see the most interesting changes to dynamics as the new norm of office work settles in.
It’s well documented that the way people work has changed, and that elements of that will remain for the foreseeable future. The headline impacts have been property values, rental return and vacancy rates, however there are trends at a more micro level worth highlighting alongside these.
Flexible leases
With greater bargaining power now sitting with tenants, it’s becoming more common that lease terms for commercial property, traditionally very much driven by owners, are more heavily impacted by tenants. Long and restrictive terms requiring high financial input are being replaced by shorter terms where desired, easier break clauses, and more flexibility in terms of use and payment.
Tenant incentives
In an attempt to increase demand and closure rates, commercial agents on behalf of owners are offering additional incentives to prospects, such as contributions to fit outs, rent free periods, sub-leasing options and greater flexibility as mentioned above.
Office design
Offices, particularly new builds, are more reflective of new working requirements. More meeting rooms, less permanent seating particularly fixed seating, better video conferencing facilities and greater distance between desks are examples.
Subleasing
With businesses needing less seats per headcount, especially those with large existing offices, there is a rise of subleasing for both permanent and casual use of surplus desk and office infrastructure such as meeting rooms which can be leased out on an ad hoc basis.
Slow down in supply
Developments in the pipeline, such as CBD office buildings and shopping centres have slowed, as people look to both work and shop from home. Many developments currently in the build phase are due for completion around 2024, though we can expect a slow down after this period with fewer new developments kicking off during 2020, 2021 and beyond.
Higher vacancy rates
Occupancy has taken a hit during the pandemic and the impacts of this are expected to linger for some time. Premium properties have certainly been less affected, especially as prospective tenants have often been able to pick these up without the premium price tag, however high and medium grade properties have seen an increase in vacancy with the expectation that recovery to historical rates will be reasonably slow.
Accelerating return to work
It’s expected that the majority of the working population either have already or will soon return to the office at an accelerating rate. That said, it isn’t expected that entire workforces will be present in the office on a single day as employers do things such as split their workforces working week. This is also seen as an opportunity for large businesses to downsize their office footprint and expense which often costs around $30,00 per desk per annum.
Regional demand high
Demand for office space in regional areas is expected to outpace that of CBD areas, especially with consideration for changing office design in regional areas. Whilst regional areas have by large been less impacted by COVID, they have also seen an influx of population and increased demand for casual working space. People who traditionally travelled from regional areas close to major metro cities many times a week are now working more days from home and often find that working from home isn’t ideal. These people have sought out working space in regional areas, particularly the likes of co-corking and sub-let spaces, often financially supported by their employers who have decreased their main office footprint and cost.
