Current workplace trends will rip $1.6b from struggling city retailers

Either scenario will have a major impact on city retailers, particularly in food and beverage sectors, they said.

“With social distancing and health measures now largely removed, and with a high proportion of the population fully vaccinated, the return to the office is increasingly based on the preferences of individual companies and their employees,” they said.

Office occupancy data, in Australia and elsewhere, suggests the return to the office has stalled and is between 50 per cent and 70 per cent of pre-COVID levels in many cities.

“The structural shift in the role of the city office and the 9-to-5 working model has created challenges for all capital cities across the globe.”

PAR Group researchers, Damian Stone of Y Research and Rob Ellis from the Data App

Prime and A-grade city towers, most of which are owned by real estate trusts or superannuation funds, will be shielded from the impact of the changed workplace culture, analysts believe.

The glut of workers and tenants is likely to be felt most by landlords of B- and C-grade buildings.

“We believe the bifurcation of prime and secondary office assets will continue, and this was echoed by a number of the large office landlords over earnings season,” Goldman Sachs analysts Jeffrey Pehl and Daniel Downes recently told clients.

“Notably, in the current environment, tenants are being more selective with space occupied, with a preference for newer-style, well-located office accommodation that includes high-amenity and strong ESG credentials, as companies compete for employee talent,” they said.

Melbourne has 10 premium grade buildings, most of them clustered along Collins Street, and 128 A-grade office towers. The city’s secondary stock includes about 251 commercial buildings, according researchers at agency CBRE.

Sydney has 29 premium towers, 198 A-grade buildings and 238 secondary commercial buildings.

“In the long term, structural vacancies in the secondary office stock seems likely,” Stone and Ellis said.

Workers, when they are in the office, want to be in top-quality, centrally located buildings that have a high level of amenity, a trend that was becoming evident before the pandemic, they said.

The loss of CBD spending is likely to be made up by more spending in the suburbs when workers are home based. Moving annual turnover, a key retail metric, is on average about 40 per cent lower in Sydney’s central city shopping centres, Stone and Ellis said.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.