Pushing back on homework
As the world treats COVID‑19 as a distant memory, there is an increasingly strident push (from employers and landlords) to bring white‑collar workers back to the office, to encourage collaboration, restore productivity and revive city centres.
The struggle is real
After a taste of freedom at home, workers have been slow to swap tracksuits for work suits, resume their commutes and return to their desks. For many employers and employees, the compromise comes to about 3–4 days a week physically in the office.
A case of missing demand
Amid a cyclical slowdown due to higher interest rates and a structural shift to working from home, there has also been a material reduction in office net absorption over the past three years. Some of this missing office demand is permanent, which will ultimately be reflected in occupancy rates, rents and asset pricing.
Back to which office?
As more workers return to their desks, they are being more selective in the location, quality and amenity of their workspaces. This is driving a widening gulf between the city and the fringe and between the different office grades and service offerings.
A market clearing price
Meanwhile, a long‑awaited price correction is unfolding in Australian office markets. Certainly, there is more adjustment to come locally, but offshore markets are already finding that market‑clearing price, enough to bring investors back into play.
Selective on equity, credit still resilient
For investors, there is clearly a tale of two markets. Equity investors are being highly selective, keenly seeking the right entry price. Investment‑grade credit exposures are still very resilient, even as major lenders retreat from this space and impose much more conservative lending terms.
