Headlines of the office market death are premature

Articles continue to be published decrying the death of the office market and how the new norm for white collar work revolves around working from home. Headings such as, “The office as we knew it is dead”, “The office is dead…long live the office” and even the Australian Financial Review “The Death of the office”. With the hundreds of millions of dollars invested in this space, is it really plausible to believe and accept that the economic efficiencies of cities and offices are no longer relevant?

There is no doubt that office buildings are evolving, experiments have occurred in design and layout but the purpose has always remained the same. To concentrate staff in a pleasant environment that has everyone pointing in the same direction with limited distractions to maximise returns on investment. As crude as that is, it is also this simplicity which makes it so important to the economy.

City planning and infrastructure are also designed to make cities more efficient and functional. Public transport in Australia is as one of my learned friends eloquently describes, “a situation where all roads lead to Rome.” Again the investment in this infrastructure has been made and will continue to be maximised and improved upon. Why has it all of a sudden become less pertinent? The greatest number of new jobs may well be occurring in the suburbs, however cities largely remain the epicentre of wealth creation.

In an older article regarding Australian infrastructure, the following was noted, “Australia’s major cities contribute nearly 80 per cent of the national Gross Domestic Product and employ nearly 75 per cent of its workforce (ABS 2006; Raskall 2010). They are the principal location for approximately 70 per cent of Australia’s businesses, including nearly two thirds of its small and medium-sized businesses, and nearly 80 per cent of large corporations (Parliament of Australia Library 2005).”

It also stated, “Cities can provide benefits to business through connectivity, large-scale provision of factors such as skilled and specialised labour, and the capacity to attract such labour. There is an important two-way relationship between cities and the businesses located within them.” Because we are in the middle of a pandemic, what has changed to make these relationships no longer matter? If anything, the geopolitical landscape that Australia finds itself in makes this considerably more important. If Australia is to remain competitive globally, office and city interconnectedness will be critical to how the nation emerges.

Across almost every advanced economy in the world, the concept of geographical decentralisation has been explored with businesses and government usually reverting back to a more centralised model. Through these efficiencies, significant cost savings can be made. Centralisation is often considered more equitable for staff as well with regard to their travel times and capacity to utilise public transport or private parking arrangements.

So whilst the pandemic has enabled the capability of working from home through improved technological solutions, they are far from perfect. In an article written during the height of the lock down, RMIT Associate Professor Mark Gregory said the problem for Australia is its National Broadband Network…in what he described as a “lemon”.

“Because of the second rate technologies, the obsolete technologies that have been forced on the NBN by the Coalition there’s large anecdotal evidence across social media and Twitter … that the reliability in terms of what people are getting is really bad,” says Gregory. “Dropouts, congestion, poor quality is rife across the network.” This is not conducive to effective and efficient work outputs that are easily overcome in an office environment. Managing technology across multiple destinations creates system and process stresses that previously did not exist. In addition, it often contributes to hidden additional expenses in ensuring that home offices are compliant with the standards of the parent business, increased insurances and complying with various codes of legislation.

In an environment where working from home may well prove optional for many employees, human nature is likely to see those who want to progress through the organisation, continue to work long hours and be seen at the office five days a week. These are the employees that will be noticed, will be called upon to solve problems because they are a simple walk down the hall, a discussion around the water fountain or a causal lunch where business is usually the topic. These are important interactions that have been largely discounted or dismissed in most of the discussions. Isolating employees is a consistent road block to the flow of information which is ultimately an erosion of profits for most white collar industries.

With office accommodation contributing almost $2.5 billion in sales to the real estate industry in the first quarter of 2020, is this asset class really a thing of the past? The economics of walking away makes no sense, but it will grab headlines and fuel the fear that much of the media so loves. If you believe that city offices are now less relevant, then that would also imply that our current infrastructure plans are also less relevant, as is the city plan, high rise residential accommodation etc that has effectively been established to support a Central Business District. The office market is far from dead, but it is evolving.

Matthew Gross | Director | mgross@nprco.com.au