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    Ghosting the office: the commercial property dilemma

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    Highlights
    • Occupancy rates have not returned to pre pandemic levels
    • Surrounding retail suffering the consequences
    • Older, low-quality offices shunned in favour of new offices

    It was actively encouraged by Governments - work from home to help stem the spread of Covid-19.

    But more than two years on and businesses and workers are yet to fully return to our CBDs.

    It was supposed to be temporary, but Australia?s capital cities have been shunned by workers in favour of the home office.

    And now the consequences of this cultural shift is eating away at the edges of commercial real estate like concrete cancer.

    According to the Property Council of Australia, Melbourne office occupancy sits at a mere 39% of pre-pandemic levels. Sydney is just above 50%. Adelaide is the best performing at 71%

    That is a lot of workers who are no longer buying lunch and coffees from retail businesses already reeling from staff shortages and stubbornly high rents. But that is a story for another day.

    The issue at hand here is the future of older and low-quality commercial real estate.

    Sure, newly built, high spec offices will likely demand healthy interest, but in a low occupancy market, older, low-quality commercial buildings are the first struck off the tenants inspection list.

    They are often limited in terms of their use and can carry higher running costs. No one needs 2000sqm of lighting when the building is only 39% occupied.

    Compound this with a trend towards ?downsizing and upgrading? and there is a perfect storm brewing for older commercial buildings.

    And this movement is expected to quicken as old leases expire.

    So where to from here?

    The challenge is that many low-quality buildings are not conversion-friendly so don?t expect any new warehouse apartments coming soon.

    And unless there is a sizable shift of workers returning to Australia?s CBDs, some of these older, low-quality buildings may just have seen their last days.

    In an unexpected consequence, ?ghosting? the office may just have made our Australian offices ?ghosts? of their own.

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