“The current three-day-a-week guidance is not sufficient.” That is the reality for Melbourne’s once vibrant CBD, and the businesses that historically relied on office workers.  But as the city reassesses its identity, industry leaders including Property Council of Australia’s Victorian executive director Cath Evans want the government to take a stronger stance on return to work.  The NSW Government recently ordered all public servants to return to the office and Evans wants to see the Victorian government follow suit. Fewer workers in the CBD has had a devastating effect on trade for many CBD-based businesses, not to mention the impact on values of office assets.  “The daytime CBD economy remains an area of concern, particularly for those smaller retail and hospitality businesses that don’t have the capacity to cater to changed patronage patterns on Thursday nights and the weekends,” Evans says. But City of Melbourne Lord Mayor Nicholas Reece is more circumspect about the  city’s identity crisis.  “Twilight is the new sunlight when it comes to retail,” Reece says, while talking about the new trends emerging in the city’s latest economic snapshot. It’s an important observation—during the past few years, people have started to think about what a capital city could or should be, and who it is for. Some want a return to before the pandemic: a cityscape of offices with people commuting in to work and a flow-on effect for traders and service providers within the CBD. But that idea now has to contend with another choice: working from home with the flexibility and accessibility that option brings.  ▲ NSW premier Chris Minns has ruled that all public servants must return to the office. Returning to the office Workers returning to the office means occupancy increases, a big factor in determining how much value leasing an office has for tenants and asset holders. During the pandemic, the directive to work from home affected CBD office markets across a number of factors: there was no need to build new office assets, and demand took a nose-dive because companies just didn’t need as much space when government-mandated lockdowns were in place. Evans wants that reversed. “Governments have an important leadership role to support their CBD economies in ensuring the public service have an active office presence,” Evans says. “Unfortunately the Victorian Government has been lacking in action on this front since the end of the pandemic.” ▲ PCA Victorian executive director Cath Evans says the best option is a return to the office. City of Melbourne lord mayoral candidate Arron Wood agrees with following NSW’s lead and has proposed a policy as part of his campaign to have government staff return to the office, potentially affecting more than 1000 workers. The data  The PCA’s bi-annual Office Market Report reveals office vacancies fell from 14.8 per cent to 14.6 per cent across the nation during the six months to July, 2024—4.2 percentage points above the historical average. But in Melbourne, across the first half of 2024, office vacancy increased to 18 per cent from 16.6 per cent. The PCA says this is due to the addition of 69,000sq m of new premium-grade office space and not a reflection on demand which, Evans says, has stabilised. “There is ongoing demand in the market for the high-quality product office asset owners are delivering, with just under 100,000sq m in the pipeline for 2024 and 2025, and nearly 150,000sq m scheduled to come online in 2026,” Evans says. “Several significant premium office developments have been delivered in the last six months that are zeroing in on the consistent demand for quality space, sustainable buildings and high-amenity precincts.” CBRE’s Return to Office Index notes that Melbourne has returned to 66 per cent of its pre-Covid office occupancy levels. Sydney is at 77 per cent while it is more than 80 per cent in Brisbane, Perth and Adelaide. ▲ There has been a concentration on building offices in Melbourne CBD fringe suburbs, including Richmond and Cremorne. The City of Melbourne council has tried to address the situation with initiatives to encourage asset holders to retrofit and refurbish rather than demolish and rebuild. Evans agrees that moving lower grade office space to higher standards will be key to attract a younger workforce, who are more environmentally conscious. “There was a withdrawal of just over 1500sq m of B-grade office space in the same period, underscoring how governments at all levels need to support sub-prime owners to revitalise their assets,” Evans says.   “This is particularly relevant given state and local net zero targets and the embodied carbon implications of knock-down and rebuilds of underutilised buildings.”  Whose city is it?  But a government directive for people to return to the office may not be the best option, according to Spaceful workplace strategy director Tica Masuku. She says that although she can see that when an organisation or government makes a decision they may think it will spark other businesses to do the same, “how people individually take that message depends completely on their personal experience”. Masuku thinks that will count for a lot in Victoria because of how they experienced the pandemic. “When we then look at Victoria specifically ... people have gone through long lockdowns, so they’ve had to make changes in those years. “For them to come back to the office, that’s a whole new realm, also, because mentally, it’s been a very hard time. “I can imagine that more people in Victoria would put their foot down and say, ‘I’ve now got the right lifestyle—this is the way I want to work’.” ▲ Spaceful workplace strategy director Tica Masuku says it will hard to convince Victorians to return to the office after the pandemic made them adapt. Masuka says organisations need to think about what is truly necessary with their structures and systems instead of a one-size-fits-all solution. “I think what needs to be done is that each organisation looks at their own business processes and operations, and figures out what’s the best way of working for them going forward,” Masuku says. “The most important element here is giving people clarity and a lot of organisations these days still haven’t made the decision on how they want to work.” It is far from an issue only in Melbourne—in San Francisco, tax incentives for companies that have workers at the office four days a week are being considered among candidates running for local office. Masuku worries that instead of thinking what will work best for the happiness and productivity of workers, and therefore the long-term viability of a company, such policies will push short-term financial gains only. “For organisations, a robust, thought-through, long-term work and real estate strategy is more sustainable than haphazardly reacting to short-term government incentives,” Masuku says. ▲ City of Melbourne lord mayor Nicholas Reece says how people view the CBD has changed with more coming to the city centre after working hours. What the City of Melbourne council is now seeing is a shift in how the people perceive the CBD—not just as a place to work but a place to be after work. “Shoppers are spending 19 per cent more after hours in the CBD this June compared to last year,” Reece told The Urban Developer . “The busiest time around Melbourne Central is now between 5pm and 10pm. We’ve been supporting local traders to embrace this trend by shifting their opening hours. “Tuesdays are 29 per cent busier than last year, and Saturdays are now the busiest day of the week.” Though work from home is a boon for those parenting, caring for others or those needing more accessibility and disability accommodations than their office offers, Evans says the workplace is still the best option. “The office is still unrivalled as a location for learning and mentoring,” Evans says. “The benefits of informal learning, through office conversations and natural interaction, can’t be easily replicated in the work-from-home environment. “These learning opportunities will support better networking and career advancement opportunities over time.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.
