Post-COVID office trends: East coast stays home, Perth returns to office

Some things change while old habits never die. During the pandemic, the country’s white collar work arrangements saw a rapid change, with remote work finding commonplace among most Australian firms (after all, there wasn’t much choice in the matter). But with COVID behind us and normality having returned, where is the country at with its flexible work arrangements? Are office property landlords still feeling the effects from the work-at-home culture?

While flexible arrangements have become a fixture on the east coast—particularly in Sydney and Melbourne—the white-collar workforce in Perth is bucking the trend by gravitating back to high-quality office spaces. It’s put an even bigger wedge between the commercial real estate markets across the country, with large implications for office property investors… depending on their asset’s postcode.

Remote work works for the east coast

According to CBRE’s return to office indicator report, all CBD markets in Australia saw an increase in workers occupying office buildings in the 12 months to Q1, 2024. But despite improvements, east coast juggernauts like Sydney and Melbourne have recorded some of the lowest office attendances in the country.

On Sydney:

Sydney has improved from 65 per cent in Q1 2023 to a 77 per cent weekly average in Q1 2024. The major banks and professional services firms are becoming more assertive in their return to office plans which is likely to have benefitted Sydney’s attendance.

Sydneysiders are much preferring remote work, but for a range of understandable reasons. Digging deeper, their persistence of flexible work arrangements can be largely attributed to poor public transport usage, changes in corporate policies and evolving employee expectations.

The report also revealed this about Sydney’s southern neighbours:

Melbourne and Canberra remain the markets with the lowest attendance rates (62 per cent and 66 per cent, respectively)… The public sector exposure in Canberra is the main driver for the lower attendance in that city. Interestingly for Melbourne, the discrepancy between peak day (Tuesday) and lowest attendance day (Friday) is the biggest of any market in Australia.

Factors driving remote work on the east coast

CBRE highlighted multiple factors for the reduction in office attendance in the years since the pandemic:

1. Public transport challenges: Many employees in Australia’s major cities continue to avoid commuting due to concerns over growing traffic and reliability of public transport. Sydney’s train usage remains below pre-pandemic levels, a key indicator in the ongoing preference for remote work.
2. Employer flexibility: Businesses on the east coast have leaned into flexible work policies, allowing more employees to work away from the office. Their reason? Flexibility provides a competitive advantage in attracting and retaining talent. But how true this is remains to be seen, given the importance of a centralised workspace for many teams.
3. Employee preferences: Most employees enjoy the freedom of working from home, avoiding congestion on freeways and balancing their lifestyle with more time out of the office. The past four years has cemented this preference, making a return to the office less appealing.
4. Cost considerations: Understandably, a shift to remote work reduces overhead costs for businesses with large office spaces. This has led some companies to downsize their office footprints. The change in workplace requirements hasn’t helped office property values on the east coast.

Perth’s return to office

But in the west, Perth’s white collar workforce is bucking the trend, returning to office environments at a far higher rate than many east coast counterparts.

Perth’s average weekly occupancy reached 93 per cent as at Q1 2024, with its peak days seeing 96 per cent occupancy.

Perth workers typically have shorter commute times to their office premises. And while no employee was a stranger to flexible work arrangements after COVID, the permanent structure never really took.

The continued relevance of the office has led to a more robust office market in Perth—as we’ve pointed out in our recent Perth CBD office white paper—giving comfort to office property investors about the continued relevance of office spaces in the west.

What does this mean for office property investors?

The contrast between the east coast and Perth’s office markets is a great reminder that not all markets are the same.

Australian fund manager Dexus reluctantly announced that the book value of their Sydney-based office portfolio fell by 11.3 per cent as of its end of financial year valuation. It’s not entirely to blame but remote work is entrenched in cities like Melbourne and Sydney. And acquisitions in these locales might warrant adaptive strategies, like enhancing amenities to attract hybrid work models or even repurposing office spaces for mixed-use. The latter is already being looked at in Melbourne to alleviate their housing supply crisis.

But in Perth, the return to office continues to drive demand for high-quality office spaces. Offices remain relevant as hubs for office-based work, and that relevance should offer landlords a good deal of comfort.

Australia is a big country. But it’s not just distance that separates us. It’s culture too. And the office cultures across our nation are vastly different when you look closer.

No two property markets are the same. That’s why it pays to invest alongside professionals that both understand the dichotomies and know how to leverage that understanding for profit.

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