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Following close to three years of pandemic life, Australians have finally seen a “return to normal” in 2022.
Across the nation, shopping centres, sporting arenas and concert venues have been filled to the brim — and yet, other aspects of our pandemic lives have been harder to let go of. Empty offices across Australia’s central business districts reveal that our working lives are somewhat stuck in the ways of the pandemic.
Lower office occupancy rates became commonplace at the start of the pandemic as businesses were forced to adapt to changing circumstances, which introduced the popular work-from-home (WFH) model. This later morphed into the hybrid working model as restrictions were lifted and elements of normal life were reintroduced into society.
Though we are a few years down the track, office occupancy levels have remained low. Figures shown in Banner Asset Management’s recent Quarterly Property Report suggest workers across the country are hesitant to return to the workplace, with the national vacancy rate standing at 14 per cent at the end of the June quarter, up from 13.5 per cent in March and above the 10-year average of 11.2 per cent.
However, there is significant variation in occupancy rates across different cities. Following varying levels of COVID-19 infections across the country, each state and territory has been recovering at its own rate. Consequently, a split appears to be emerging in office occupancy levels between cities most and least affected by COVID-19.
Workers have been returning to offices in larger numbers in cities that were less affected by lockdowns — such as Brisbane, Perth, and Adelaide. The quarterly report reveals these three cities have office occupancy levels over 70 per cent.
In comparison, cities that endured repeated and persistent lockdowns are taking longer to catch up. Sydney’s occupancy level has remained at 52 per cent, and Melbourne’s occupancy level is even lower at 39 to 41 per cent, according to a September survey by the Property Council of Australia.
A possible explanation for this divergence is that Melburnians and Sydneysiders spent more time working from home over the pandemic and thus became more accustomed to the lifestyle. Breaking free from these habits appears to be a greater challenge for these workers.
This preference to work from home has become stubbornly commonplace in Melbourne and Sydney, leaving workplaces emptier than before the pandemic and casting a shadow over CBD office property.
However, despite lagging occupancy rates, it has been positive to see that investment in office buildings has remained strong across Sydney and Melbourne. In Sydney, investment activity over the June quarter totalled $410 million, bringing the half-year total to $2.78 billion, its highest since 2019. Melbourne is also seeing consistent investment activity, with 230,000 square metres of supply in new and refurbished buildings expected to be completed by the end of 2024.
This suggests that whilst Melbourne and Sydney’s office occupancy levels are trailing the rest of the country, investors still have faith in an eventual return to the office. This is especially true for prime-grade stock, where vacancies have eased due to a general flight to quality, particularly in Melbourne. Thus, whilst the hybrid model is likely to remain somewhat popular, signs point to a slow but steady recovery for Melbourne and Sydney’s office occupancy, with a strong labour market hopefully fuelling further demand.
Andrew Turner is the chief executive of Banner Asset Management.
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