Office Market Monitor | 2022 7 Sector trends The Australian economy, in 2023, is going to present many challenges for Australian businesses and families. In 2020 and 2021 the economy was seriously threatened by Covid, however, the RBA and Federal Government stepped in and ensured the country was awash with cash. The same thing happened around the world. In 2023 the challenge is inflation, unfortunately a much more difficult problem to contain and one where the solution is tough on everyone and slow to work. Cheap money has now evaporated around the globe, and any industry needing large amounts of capital for growth, or where customers are reliant on credit, should expect softer conditions. This includes the construction, technology, real estate, finance, arts/entertainment and some parts of the retail sector (particularly large format retail where a significant portion of demand is derived from the new housing sector). 1. Softer economic conditions will present challenges Of those industries, real estate, finance and technology mostly occupy office space, and are likely to reduce their demand requirements over the next two years. Big office occupiers like government, accounting and legal firms tend to see smaller changes to their workload during economic downturns – and therefore their demand for office space - as they mostly provide services to businesses and the community that can’t be foregone. Unfortunately, when inflation is high, it is small and medium sized businesses that find it harder to cope. This is because they have less purchasing power, so usually have to accept higher prices than bigger organisations, have a smaller customer base through which to spread higher costs amongst, and (usually) smaller cash reserves. While big businesses may be able to absorb some higher price inputs for a while, smaller businesses have far less capacity to do this. This means that any market that is dominated by smaller businesses will be riskier over the next few years.
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