Office Space; Declining Or Growing?

As businesses seek to decentralise their operations in an effort to remain nimble, whilst minimising their overheads AND still trying to remain competitive in their marketplace, office space has become a big focal point.

On the one hand, many companies are opting to downsize their office space, eliminating rental costs, utilities and even cleaning costs. Add to this the removal of printers, servers, bulky computers and even parking costs and the savings start to mount up for a business of any size.

For companies that can function perfectly well with a communal Dropbox for file sharing, Skype for communication and a Google or Microsoft account for email and document creation, moving out of the conventional office is a no-brainer in terms of cost minimisation.

And this is a fiscal strategy certainly on the rise as many organisations opt for the hot desk option for their staff.

However, it is not just the decentralising of office space that is booming. The conventional business model of companies having a centralised office is also increasing.

conventional office space

Within the last two years, demands for office space in the CBD areas of Melbourne and Sydney has reached record levels, attracting such global players like WeWork (who “sells” office space to companies for short-term lease periods) to Sydney’s bustling George St precinct.

In 2014, more than half a million square metres of new office space was leased in Sydney with Melbourne a falling a hundred thousand square metres short of (half a million) that figure.

This growth has been steady over the last 5 years, and shows no signs of abating. As Australia’s two premier cities continue their meteoric growth, they are attracting national and international interest from companies looking to have a footprint in the CBD areas.

This has led to an increase in development opportunities for national and international investors looking to capitalise on this interest which shows no sign of slowing down given it is simply a bi-product of an increase in population.

As Australia – particularly Melbourne – continues to feature prominently in the “World’s Most Liveable City” polls, it will continue to attract a population growth around the 2% mark (2.1% for Melbourne, 1.7% for Sydney)

hot desks

Should the dollar remain stable at around 0.7 of the greenback, foreign investment becomes more lucrative because the returns are higher. Based on these trends, investment in the office space might reach a point where many large corporations may opt to have their International Headquarters in Melbourne or Sydney.

In Sydney, IT firms have led metropolitan office enquiry over the past five years, accounting for 16 per cent of all enquiry, while business services (13 per cent), media and communications (11 per cent) and finance and insurance (10 per cent) rounded out the top five.

The fact that IT companies are the front-runners in the enquiry for office space is at a complete juxtaposition to the growth rates of that particular industry. IT-based companies are speculated to be on the decline since onsite servers are no-longer a necessity for small, medium and large businesses thanks to the advent of the cloud and virtual storage.

This has eliminated the need for companies to engage IT-based firms in contractual maintenance arrangements to look after their onsite servers.

Sydney has become one of the go-to international city for many corporate technology firms such as Apple, Microsoft and Google who are seeking to gain a foothold in Australia as business continues to grow.

In fact, it is precisely these large corporate sharks that are bringing in the flounders; smaller IT firms and business services hoping to share in the spoils of companies that a drawn to such organisations.

Melbourne is attracting more service-based enquiries for business, with IT, constructions and trade and health and community services rounding out the growth sector. Whilst Facebook and Google once had offices in the Regus serviced offices on Melbourne’s Collins’ street, they have since relocated (most likely to Sydney).

Since the early 2000’s, only a quarter of a million square metres of additional office space has been built in the Melbourne metropolitan markets. This figure has been trebled in Brisbane and increased by 150% in Sydney over the same time period.

This is rapidly changing as these cities struggle to keep up with the demand of economic growth.

There is also much room to grow in Melbourne with the Docklands precinct not quite reaching the stratospheric levels the Victorian Government initially hoped it would. Lack of readily available transport and entertainment has not created a “Darling Harbour” for Melbourne, and indeed many local restaurants are struggling.

That doesn’t mean people are not eyeing off the area for future developments. Inner city Melbourne suburbs like Southbank are booming in terms of new projects, and since such a small suburb only has a finite amount of permits it can hand out for new developments, perhaps the Docklands will become a new business hub.

Whilst the vacancy rates of Melbourne (and Sydney) ebb and flow like the weather, most developers are opting to back these cities’ growth as potential international business hubs and are investing with vigour.

The population growth, rise of business and general economic stability of Australia at the moment would make it seem that these investors are backing the right horse at this stage.