New South Wales (NSW) is a service-oriented economy with services representing 86% of NSW’s industry output.[1] The proportion of white collar jobs in NSW is projected to rise by 1.6 pps to 74.5% by 2030.[2] This trend towards a higher proportion of white collar jobs in NSW is anticipated to have a positive impact on demand for office space. Not only as companies grow their employment base, but also regarding the nature of the use and location of the office space. We anticipate two major trends to evolve as to how the demand for and nature of office space use will change over the next 10 to 15 years.
Figure 1: White Collar Jobs – proportion of total labour force
Source: JLL Research, Deloitte Access Economics
Firstly, the compression in workspace ratios is likely to moderate, compressing only a further 9% by 2027, as landlords and tenants start to use space differently.[3] The workplace evolution from self-contained offices, to open-plan and activity based working has led to average workspace ratios in the Sydney CBD compressing by 25% between 1987 and 2017.[4] Owners and occupants will seek to extract more value and ‘sweat the asset’, by making more efficient use of space outside of traditional working hours. We are already seeing some landlords becoming more creative with their use of communal areas for event space, cultural activities and food and beverage (F&B). These initiatives allow the building to develop a brand and create a positive perception within the community. Conversely, we are seeing this trend in the retail sector, with TwoSpace offering co-working space in F&B establishments during the day, which are then converted to traditional use in the evening.
Secondly, we believe that the hub-and-spoke model will gain more prominence in the real estate decision-making process for organisations. We expect to see a reversal of the trend over the past 10 to 20 years where organisations have consolidated operations into the CBD, metropolitan market or business park locations. The expansion of Sydney’s population into new growth corridors has led to a 15% increase in the average commute time across Sydney.[5] Over the next 10 to 15 years, prime talent will no longer be within a 30-minute commute to the CBD. We expect to see a considerable shift towards the development of satellite offices and co-working, as a consolidated real estate model becomes more challenging and flexible working practices become more commonplace. Organisations are now exploring and starting to embrace a hub-and-spoke model partly to provide flexibility for a diverse workforce. National Australia Bank will split their tenancy between the CBD and Parramatta, Herbert Smith Freehills have leased 2,994 sqm at Macquarie Park, while some traditional business park tenants from Macquarie Park have taken enterprise agreements with co-working operators in the CBD/Fringe.
Service-oriented organisations are motivated by the attraction and retention of knowledge workers. We believe that embracing the hub-and-spoke model and providing flexible working solutions will be key ingredients in modern organisations’ human resource strategies.
[1] Deloitte Access Economics; Employment Forecasts, Dec 2017.
[2] Deloitte Access Economics; Employment Forecasts, Dec 2017.
[3] JLL Research, Deloitte Access Economics, Dec 2017.
[4] JLL Research, Deloitte Access Economics, Dec 2017.
[5] Australian Government; Department of Infrastructure and Regional Development, ‘Five facts about commuting in Australia’, 2016.
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