New data shows that the amount of flex, or co-working, space available to lease in Australia’s major city centres has blown out by 64 per cent from pre-pandemic levels.
Listed flex space rent rates have also plunged by up to 25 per cent, with the national fall averaging just over 10 per cent, according to listings data from sector-specific leasing site Rubberdesk.
Chief executive Jim Groves said real rents have probably fallen further, with tenants negotiating discounts of 40 per cent off the advertised price.
“What we’re finding is that when customers are coming to market and inspecting spaces and getting proposals they’re getting discounts off these listed prices of 30, 35, up to 40 per cent in some cases,” Mr Groves said.
He said flex spaces have been hit harder than traditional offices because tenants have been able to exit due to the shorter, more flexible lease or membership terms offered by co-working operators.
But Mr Groves said this looser structure will be a strength post-pandemic and in the long term, citing the rapid rebound of leasing demand in Britain, where it operates, after lockdown restrictions were lifted.
It is a view supported by major office landlord Abacus Property Group, which has just announced the launch of its new flex brand.
Flex by Abacus is being launched across 1200 square metres of space at 99 Walker Street, North Sydney, and 14 Martin Place in the Sydney CBD.
The spaces will be managed by Work Rooms, a workplace management business founded by Stuart Brown, former managing director of WOTSO Workspaces.
“We are breaking with the traditional conventions of long-term office leasing and adding flexible leasing options to our offerings,” said John Courtney, Abacus general manager of assets, retail and development.
The managing director of Abacus, Stephen Sewell, added: “Offering flexible space on dynamic leasing terms will widen our customer market and is expected to drive higher occupancy outcomes at our assets.”
In its 2020-21 financial year results, Abacus said it owns $1.6 billion in offices, with an average occupancy rate of 95.5 per cent
Also optimistic about the immediate future of flex working space is Melbourne developer the Deague Group, which launched co-working brand Central House at 101 Moray Street in South Melbourne, and will expand to Toorak in 2022.
Deague Group announced it has committed to 3200sq m of space over the third and fourth floors of Vicland’s St Germain office and retail project at 489-505 Toorak Road, due for completion next October.
‘Flight to quality’
Managing director Jonathan Deague said COVID-19 has tipped the balance to flexible and co-working spaces over traditional offices.
“I can’t see businesses going back to signing five-year leases for quite some time,” Mr Deague said.
Central House is pitched as a high-end brand, leveraging the Deague’s Group experience in developing Art Series Hotels.
“There is a place for many different layers of co-working, very much like the hotel industry, from your low end to the Park Hyatts,” he said.
“Certain people want to go to creative co-working spaces, but we’re targeting the higher-end professional services market, providing that luxury hotel feel and the amenity that comes with it.”
Mr Grove from Rubberdesk predicted that, based on what happened in Sydney after the first lockdown ended, there will be a flight to quality among flex and co-working tenants, as is the case with traditional offices.
“Activity came back really strongly, and there was a flight to quality for two reasons,” Mr Groves said.
“One, quality and premium office space became more affordable, and secondly there was a desire among the tenants to attract employees back to a beautiful place to work.”
However, the issue of vaccinations and the return to the office, when it does happen in NSW and Victoria, has yet to be resolved and may present a barrier to entry.
Brad Krauskopf, co-chair of industry group Flexible Workspace Australia and founder of Hub Australia, said it is a major issue for the industry and requires leadership from state governments.
“All our operators are looking to abide by the rules but at this time it is not clear what the rules will be,” Mr Krauskopf said.
Across Australia at the end of August, there was 174,000sq m of available flex and co-working space in the major CBD markets, compared with 106,000sq m in November, 2019, an increase of 64 per cent, according to Rubberdesk.
The median monthly office price per person in the Sydney CBD fell 15 per cent to $819, while in Melbourne rental costs slumped 20 per cent to $603. North Sydney experienced the biggest price drop, plummeting 25 per cent to $497.
Available space in Brisbane rose from just under 5000sq m to almost 15,000sq m, while the Canberra market also suffered. Vacancies in Perth and Adelaide rose more benignly due to the lesser impact of COVID-19.