Trends

TrendS Attracting workers back to the offi ce

 DALLAS SHERRINGHAM

THE work from home revolution may have long term consequences for CBDs like Parramatta, Blacktown and Liverpool in the future.

The phenomenon caused by the COVID-19 threatens to create a unique new generation of workers who seldom visit the head offi ce of the company they are employed by.

And this means companies will potentially downsize, save a small fortune on rent and facilities and could leave large offi ces abandoned.

However, before you hastily transfer your super from property investments to mining stocks, leading companies already have a plan to entice workers back to the offi ce.

Major offi ces in the USA CBDs these days are becoming temples of indulgence as much as places of work. One Vanderbilt, a new skyscraper in Manhattan, has unveiled a restaurant run by Daniel Boulud, a Michelin-starred chef, according to a feature story in The Economist.

Amazon’s second headquarters in Arlington, Virginia, will include an amphitheatre for outdoor concerts. In London, 22 Bishopsgate is so dog-friendly that its receptionists issue passes to pets. The recently opened glass tower, which dominates the city of London’s skyline, also houses a climbing wall and a spa.

As companies try to tempt workers back to the offi ce, developers and investors are betting on new buildings with alluring amenities.

But a huge uncertainty hangs over them: will enough people come? Even as vaccinations progress, workers have been slow to return in the USA and Australia.

In early May only one in 20 buildings in America had occupancy levels above 10%, compared with a third in Europe and Africa and roughly half of buildings in Asia, according to Freespace, a property-tech fi rm. With the return to work only just beginning and long leases yet to expire, the extent of any losses is worryingly hazy.

Covid-19 has sharpened the demand for newer buildings with better facilities. JPMorgan Chase, a bank, will reduce its overall offi ce space even as it builds the second-tallest skyscraper in Manhattan for its new headquarters, The Economist reports.

More than half of tours across New York City by prospective tenants are of high-quality “Grade A” offi ces, compared with 38% before covid-19. This shift is happening alongside another disruption: a tilt towards greener workspaces.

Working from home has become a popular and necessary option for many workers.

Tilt towards greener workplaces

As seen in the Lang Walker buildings in Parramatta, many property fi rms are pledging that all new buildings will be near net-zero carbon.

Meanwhile, the shift towards wellness and sustainability is no fad, insists James Goldsmith of AXA Investment Managers. “This isn’t a social experiment. We’re asset managers—pension money is at stake.”

Few in the industry, however, will be drawn on the reckoning they may face, The Economist reports. The fl ight to quality is leaving older buildings looking undesirable just as remote working reduces the total demand for offi ce space.

Start with the risk that older buildings become stranded assets. Without substantially lower rents or improved ventilation, access to outdoor space or natural light, many will struggle to sell or attract tenants.

Some dated offi ces are getting facelifts. Fabrix, a developer, is upgrading a 1960s building in London to include a rooftop forest and a glass-fl oored infi nity pool. Others will be converted into lab and research space, or houses.

When AIG, an insurer, moves to a recently renovated skyscraper in midtown Manhattan, part of its old headquarters, a tower block built in the 1980s, will be converted into fl ats. The City of London Corporation, which oversees the Square Mile, plans to turn vacant space into at least 1500 new homes by 2030.

Yet none of this can mask the fact that as remote working sticks, demand for offi ce space should fall. Companies are beginning to rethink their property needs, with many downsizing or delaying new leases. Globally, more than 103m square feet of offi ce space has already been vacated since the pandemic began, according to Cushman and Wakefi eld, a broker.

The reliance of commercial property on debt fi nancing means a downturn could have nasty reverberations across the fi nancial system. Banks, fi nance companies, insurance fi rms and superannuation companies rely on offi ce developments and healthy occupancy for income in Australia.

And CBD developments rely on high occupancy rates to attract banking fi nance.

CBD apartments, while creating much lower rental yield, may be a better investment in the future.

However, the falloff in workers in offi ces will mean that staff will no longer need to live close to work, creating further uncertainty for CBDs.

In the past, attempts have been made unsuccessfully in the Sydney CBD to have offi ce blocks converted into apartment buildings. Local Government planning codes mean older offi ces lack the plumbing and height requirements to be converted.

So, look for the older offi ce buildings in Western Sydney to be revamped and relaunched complete with wellness centres, restaurants and fi tness centres to attract clients.