At the Property Council’s office market report breakfast briefing in Sydney on Thursday morning the mood from the podium was upbeat.
Vacancy was down, tenants have miraculously put paid to the doom and gloom of 12 months ago and actually taking up space. Not all businesses but some, definitely – enough to drive some positive numbers, as Adrian Harrington, head of wholesale investor relations and fundraising for Charter Hall, was happy to present.
“It’s extraordinary when you look back 12 months predicting where vacancy rates would be, there was a bit of pessimism as to what would happen with supply coming down the tube and where we were going to go in the pandemic,” Harrington said.
“It’s quite clear this sector has been quite resilient.” The headlines about work from home and the death of the office and death of the CBD had clearly been greatly exaggerated.
Harrington ran through some impressive data to prove his point.
The Sydney CBD in January this year showed no change in vacancy rates, coming in at 9.3 per cent, slightly above the 32-year historical average of 8.7 per cent.
Melbourne and Brisbane were the only two CBDs where vacancies rose.
Hobart’s vacancy actually fell by 240 basis points.
The aggregate national number showed a slight rise from 11.9 per cent to 12.1 per cent, while demand rose an average 1 per cent across the country’s CBDs, and 0.7 per cent in non-CBD markets.
Property Council of Australia Chief Executive Ken Morrison said in a media statement: “These are a striking set of figures which illustrate that the office is alive and well in today’s economy, even as the pandemic changes how we use workspaces.”
Harrington thought the numbers – and the 300 people who showed up for breakfast at the Fullerton Hotel – were testament to the positive feelings about the CBDs and that workers would come back. But was it?
Digging even lightly into the data it seems that some sectors of the CBD office consuming market are growing and others are shrinking.
Overall, it seems big corporates are betting they will still need space and that the work from home edicts are short term.
Some want their workers go back to the office, especially those who own property, his company among them, Harrington said.
“How can we expect our tenants to come back if we aren’t as owners of property prepared to be back in the office.”
The tech companies are certainly bullish. Google has bought a building in London and Atlassian, though it’s told everyone to come in when they like, is going ahead with its vertical precincts building in Sydney.
Perhaps these tech giants’ reason that with all the work they do in cyberspace, they need some material form to keep them tethered to human life on earth (lest we think they want to build an escape rocket as we suspect Elon Musk and Jeff Bezos are working on.)
But around the traps the anecdotal evidence among we trusted Earthlings is pretty convincing that the world has changed, mostly because it could. And by this we mean that workers, especially the senior ones with good work from home spaces, have discovered unexpected gifts – more time, less stress.
The pandemic made change an even bigger constant
The pandemic though was the original driver and let’s make no mistake, no one says it’s done and dusted
Professor Lidia Morawska, another speaker beamed in from Queensland’s University of Technology who is an expert on air quality and health said if it was fear of catching the Omicron variant of Covid that keeps workers away from the office, they’re right to be concerned.
She elaborated on her comments on the day in a phone conversation later with The Fifth Estate.
Key is that it’s not impossible to provide clean, safe air for people in our commercial buildings. But do we?
“The biggest problem we have with air conditioning and filtration is – is it working properly?”
The professor says in many cases we simply don’t know. We have minimum standards of air quality in the Building Code of Australia but as a rule we don’t measure to see if the built form delivers on the promise, apart we’re guessing from specific interventions from specialists called in to fix issues.
Morawska says we need an audit of our building stock to see what the true situation is overall. But this needs significant funding. You’d think with the size of the assets at stake and their place as “engines of the economy” that both owners and government would be open to some risk management in this case.
Keeping an eye on energy efficiency
Morawska says the capability certainly exists to ensure safe environments, but we also need to find the right balance between the quality of air and energy efficiency.
For instance, we can bring in copious fresh air, but at big costs to energy efficiency because the air would need to be properly “conditioned”. This is especially the case with big floor plates because the air would need to be pushed through all parts of the space.
Open windows sound great but they’re ineffective if you can’t get flow through ventilation.
In good news you don’t need the highest grade HEPA filters either. It turns out the particles are quite large.
“The virus is never naked in the air,” Morowska says; it’s always emitted in a particle containing salts or liquids from the human body such as mucus (try not to dwell too much on that).
So lower grade filters are enough and besides HEPAs’ finer grained filtration requires more energy to push air through.
But there’s more going on for workers than fear of Covid
First, the sky didn’t fall in just because every worker in the land was no longer committed to super long hours, after hours texts and emails, neglected family, community, health, peace of mind, space for thinking – and probably life span, come to think of it.
Two blissful extra hours a day for many – time for all the things they’d forgotten existed. Even time to goof off occasionally. Overhead in the ladies on Thursday was around how hard one woman found it to work at home. “I see a pile of stuff near the washing machine, and I just have to do it,” she said. “I move the mouse around a bit now and then, so they think I’m working.”
Ah, remote supervision: clearly it has some way to go.
Even so, the economy is growing, profits are up.
It’s like someone has pulled back the curtains in the land of Oz to see that the wizard is just a little old man peddling as hard as he can to keep the show going. We didn’t need all the razzamatazz.
But of course human nature thrives on its social genes too – we get inspiration and energy and excitement from working with like minded people and being exposed to those who are different and can make us change our minds.
So we’re betting what the consensus said, balance and mix will probably be the go-to for many.
Besides the concierge services from Accor like Charter Hall has brought in sounds good. So too the specialist hospitality designer that’s crafted exciting places to be for Brookfield.
The economy, stupid, is doing fine
And business is doing fine too it seems. Some sectors are growing. The Reserve Bank of Australia this week gave the economy a tick and said GDP would probably rise 4.5 per cent this year. Interest rates may have to go up sooner than expected, but then again there’s probably enough momentum in the economy to take this on the chin, the RBA reasons.
But are things quite as rosy as all that? Are we living in a fool’s paradise, fuelled by the fool’s gold of stimulus spending during the worst of the pandemic and quantitative easing where the Reserve Bank pumps liquidity – cash – into the market and everyone gets high?
Observers throughout history say that eventually all things that go up must come down and many are now predicting another short burst of positive activity with an eventual crunch possibly as soon as the second half of this year.
In the US the Federal Reserve has signalled the cash taps are now definitely off. Do we believe it? Will they turn off slowly and open up again if the 1 per cent who run the world say they should keep things pumped?
Jeremy Grantham certainly thinks planetary constraints will bring the end of the other “drug” our capitalist system has been hooked on for more than 200 years – the unabated extraction and consumption of our natural resources, the free ride of our biggest corporates to poison the earth with chemicals – knowingly or unknowingly – in return for faster bigger crops and fatter profits.
No more “cheap oil, cheap nickel, cheap copper” he said. If some of the current inflation we’re seeing now is related to temporary supply chain constraints, the inflation from this little number will be something far more structural.
The good bit is it will signal how fast we have to move on nature conservation and the circular economy.
The flight to quality takes on a whole new meaning
What’s interesting for our readers is the forecast from Harrington and others that there will be a flight to quality – and we agree with this.
What it means is that the best buildings, the premium and A grade buildings that can protect their occupant’s health and safety, and that can offer the best social interactions and positive work experience will benefit.
Among those buildings is where Green Star and WELL ratings buildings sit.
It’s what happens to the secondary buildings that is particularly interesting for those in the sustainability space.
As Professor Morawska told us you can be confident of good quality air conditioning at the premium end of property but who’s going to trust a shoddy office building where the private “high net worth individual” doesn’t give a toss about maintenance because they’re banking on capital gains to keep their net wealth pumping?
The quality of air in a workspace is probably the most important attribute that people cite when they talk about the comfort of their workplace. Air that’s too hot, too cold, too blowy, and heaven forbid, too potentially laden with germs or viruses, is another big reason to work at home, where you know you can control comfort to a certain extent.
But what do the less privileged do if home is far from comfortable and actually might make you ill.
Check out this story of appalling living conditions from The Guardian where an occupant said she was “literally baking” in Melbourne recent temperature surge and even the tiles were hot.
“It’s gotten to the point where the tiles in my kitchen are hot, I try to put moisturiser on and it’s hot. Everything in my apartment is literally baking and I feel like I’m suffocating,” she said.
“I pay $395 a week for an apartment that’s basically unliveable. I’ve had to go to work from my friend’s kitchen table in the air conditioning because I can’t concentrate. I’m barely sleeping.”
Guess what the real estate agent told her when she complained? There’s a cool change coming.
Ummmm not for long, not for ever.
In Sydney the NSW Building Commissioner David Chandler is focused on fixing structural defects that are rampant in many shoddy relatively new apartment buildings. But what’s he doing about the thermal quality of these?
How long before property investors in the housing market are left with stranded assets? Alongside the stranded assets of commercial property?
Is there a subprime problem looming that will make the global financial crisis look like a practice session?