Office Market Monitor | 2022 3 Over the past two years office occupancy rates, across the globe, have been severely impacted from the ‘stickiness’ of recent work from home trends. Forced lockdowns and government restrictions initially presented a huge challenge for business owners and office landlords alike, however, it was widely seen to be temporary (and necessary) as we dealt with the pandemic. The biggest change for office markets this year has been on the capital and investment side, and that is primarily due to the rapidly tightening monetary policy environment both locally and around the globe. During the pandemic, while interest rates remained at record lows, transaction volumes were relatively healthy and capitalisation rates stayed low, despite occupancy challenges. Investors and owners are now faced with a tricky combination of rising capitalisation rates and high vacancy rates (particularly in CBDs). Demand conditions are also uncertain, as businesses struggle to understand their future space requirements. Office market recovery begins Mathew Tiller Head of Research, LJ Hooker Group On top of this, the Australian economy looks set to slow considerably in 2023, as higher interest rates, due to soaring inflation, impacts consumer spending and business investment. All of these factors will combine to create a ‘fragmented’ commercial real estate market in 2023. This means that office markets across the country won’t rise and fall as one. We are already seeing a divergence in the performance of prime and secondary buildings and moving forward ESG credentials of buildings will play a huge role, as energy costs bite and tenants look to move to buildings that can operate at the highest possible efficiency.
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