Our Principal Mark Devine was interviewed recently on the ABC Morning program by Leon Compton on the future of commercial real estate. The following is an edited test of that interview.
LC: Good morning Mark. You must be watching with real interest for any shift in the way businesses are setting themselves up in city centres.
MD: The way we work is a constantly evolving thing, and technology has been the main driver of that over the last 20 years or so. The circumstances that we have had to deal with this year brings an extra layer of complexity to the table and it will be interesting to see how that all plays out.
LC: I presume the hot desk – less floor space, fewer spaces – that trend is dead and buried?
MD: Yes. And potentially for certain industries people will be able to work from home and obviously the last few months has trained us and conditioned us that that is the case.
But those people will still need to interact with their peers to brainstorm and work so that could cause a change in design, but the principle of a fluid workforce coming and going could very much be part of the future.
LC: Could it be that we will see businesses like that setting up in the suburbs?
MD: It does open up an opportunity for those satellite areas where people might find it appealing to work from. But the fundamentals surrounding getting to work in a major metropolis are not at play in Hobart and that’s potentially an advantage for us returning to a sense of normality.
LC: What have you seen over the last seven months in terms of interest in renting or buying office space in Hobart?
MD: Hobart came into this downturn in a really strong place. Commercial vacancy rates were around 4%, and that is as good as it has been for the last 20 years. The vacancy rate has obviously blown out, and there has been a significant lift in vacant stock available, predominantly in B and C grade stock. What will be interesting is the A grade stock which tends to be dominated by the public sector.
There may be changes going on in that space but that is not evident to the market as those buildings are owned by government agencies or on long-term leases. The occupied floor space may have diminished a bit with people working from home but that hasn’t become evident to the market because they are still under lease.
LC: Have any CBD tenants walked away from their leases or are you concerned about the viability of businesses that actually occupy CBD property?
MD: That’s definitely happening with lower end private sector type businesses such as your smaller consulting type firms. But equally the market does have a remarkable way of adjusting and there is an opportunity for other businesses to look at upgrading their accommodation into better standards. And that is going on as well.
I think the other thing that will be interesting is the person-floorspace ratio. One view is that the amount of occupied space may stay the same even though there may be less people working in the building because they will need more space per person to work on. Thus the need remains the same.
The contrary view is that they won’t need the same amount of floorspace because people will be working from home. Time will tell on that one.
LC: What about any accelerated changes in retail? It seems some places are remaining vacant for long periods of time.
MD: In part it tells me that the space hasn’t met the market. There may be expectations from the property owner that the market is not prepared to meet. If the owner is capable of holding out to prove their view then that is what will happen, and places will remain vacant.
Acceleration in change in retail is a good phrase because retail was changing with online well ahead of this crisis, and we have seen over the last few years some well-known brands that people have grown up with have just fallen over and no longer exist.
COVID has caused that to happen to more brands and some businesses just wont re-appear.
For the average person walking around the street, change in the retail market is more evident because you are seeing that in shop windows, as opposed to an office environment where it is above ground floor level.
Retail is really challenging where it has become more dependent on tourism and we are not sure when that’s going to come back. Hospitality businesses have really suffered and will probably suffer for a period longer.
LC: An opportunity for Tasmania? We know people are looking to move away from major metropolises. Are there opportunities to pitch for businesses to move their office space to somewhere that is well-connected, has a more regional feel, more affordable?
MD: Inquiry levels to purchase residential property have gone through the roof. Tasmania can play to its safety and lifestyle opportunities, but we need to provide people with meaningful employment.
So there’s a huge opportunity to aggressively get out and keep selling that message and try and attract those businesses.
We have tried to attract businesses in the past We went through a period where call centres were all the buzz, but we found it difficult to compete with international providers for that kind of thing.
So you have to pick the right industries.
I recall Google announcing a new facility was being sought for the Pacific region and I thought wouldn’t it be great if Macquarie Point was to woo someone like that to Hobart. We already have the highest percentage of scientists per thousands of people in the country…
LC: …and renewable energy to run them. Tasmania is uniquely placed. Mark, is there any new commercial real estate on the books?
MD: Not significantly for office space. Vibe hotel in Argyle Street is coming to a conclusion, but there is no talk of any major office building
We are still talking to people about building new hotels. So there might still be construction in that area.
LC: Thank you.