This year will be forever remembered as the year the workplace was transformed. Employees radically shifted how and where they worked as the pandemic locked down cities, closed businesses and disrupted supply chains.
As companies now consider their options, the societal benefits of remote working are being factored in to the design of the future workplace.
Industry experts at the fourth Commonwealth Bank webinar ‘Navigating the new landscape’ discussed how the shift will force building redesign as well as the positive impact on company expenditure and carbon footprints.
“Having choice means a lot to people. They can design their day in a way they haven’t been able to do before,” said Jennifer Saiz, Executive General Manager, Group Property and Security at CommBank.
Living arrangements, personality type, job type and access to technology impacted workers’ opinions about working from home.
“Some people loved it, some hated it. More have loved it than not,” said Saiz.
Being given permission to work remotely by their leaders was important and in turn, leaders gathered evidence that employees don’t need to be in the office to be productive.
The most favoured outcome now emerging is a hybrid model in which employees work in the office a few days a week to collaborate and connect with their team and spend the rest of the week working remotely.
“The rise of hybrid working will see many companies make a call on their long-term property footprint. As a result, the nature of work and workplace will continue to evolve quite dramatically,” she said.
Satellite offices and regional hubs
Saiz said CommBank was considering all options as it looked at its future workforce and workplaces, including satellite offices and use of co-working facilities, to cater for employees who post COVID can’t work effectively at home.
The commercial property market
So how are organisations responding?
Andrea Roberts, National Head of Leasing at Knight Frank, said inspection rates were generally returning to pre-Covid levels, with the exception of Victoria, but inspections were only the first step of the real estate journey. She said very generally it was hard to get a signed lease because Melbourne and Sydney had not returned to offices in significant numbers. This is because the sentiment of having Australia’s 2nd biggest city in lockdown had caused uncertainty and directors were cautious about making big commitments.
Occupancy rates are particularly low in Sydney and Melbourne. Incentives and sub-leased stock are the two areas showing the most dramatic increases. She said lease terms were holding and at this stage, face rents were not under pressure – “It may come, but we think it will be modest”.
She said three overall themes had emerged:
1. Smaller tenants were having to make critical financial decisions and this is where leasing activity is in the market. Some have moved to the home office and when ready to return, may shift to a co-working space.
2. Mid-size tenants, those occupying around 2000 sqm, were taking a more considered approach.
3. Larger tenants were delaying any decisions while they work on their business strategy, which comes before real estate strategy, giving themselves time to observe how their employees return to workplace before big decisions are made.
The workspace of the future
Saiz said the primary workplace of the future “looks like a collaborative work environment that’s dynamic and vibrant, that represents the purpose and the values of the organisation.
“You walk in and you get a sense of the energy: things are happening here, it’s a place where you want to be.”
CommBank’s newest property in South Eveleigh has a higher percentage of social spaces to workstation spaces compared to traditional offices.
Saiz said it’s about creating spaces where people can connect from a work perspective but also have social and fun interactions. “That creates cohesion … and the quality of the social spaces really underpins that.”
Amenities will be the hot currency – amenities that can lure people from the comfort of home. Think on-site cafes, retreat spaces, health hubs, shower and bike facilities and comfortable collaboration spaces with designated quiet areas for phone calls.
So how are investors responding to this changed environment and what are lenders hearing?
George Vallas, Executive Director, Future Cities, Institutional Banking & Markets at CommBank, said the bank was confident around its existing portfolio and would support existing customers but securing funding for the acquisition of retail and hotel assets was challenging.
“But there is a plethora of debt out there, whether it be commercial banks or non-bank financial institutions (NBFIs) that are looking to find a home for their cash.”
Vallas said 85-90 per cent of rents were still being paid within the commercial office sector and that this was an important factor in its support for the sector whereas retail rent collections were materially lower.
He said retailer landlords were keen to learn more about customers and had used the bank’s credit card spending data to help determine what services or products they’re missing and deploy more targeted marketing.
He said CommBank was looking for opportunities in the build-to-rent and industrial sectors, as were international banks.
Vallas mentioned that whilst the Bank was conscious of that vacancy rates across the Australian office market would likely increase, it would continue to lend into the sector however it would have an even greater focus on the tenancy profile of the assets and look through the financial strength of the underlying tenants when assessing transactions.
He said international banks had injected a lot of finance into the Australia market but he predicts that will moderate.
“In terms of NBFIs, the funds have raised a lot of money in our real estate sector looking for debt opportunities. So if there are issues in the sector there’s plenty of cash to deal with issues.”
He is not yet seeing delinquencies. If they were to appear, he expects them to be in the NBFI market and the large funds funding residential sub-divisions, commercial strata with no income and land banking.
“It can change quickly … where there will be changes, borrowers have adequate time now to deal with potential LVR issues, to speak to the NBFI, to speak to their existing bank to reduce their coverage.”