Workspace puts squeeze on staff

OFFICE workers are getting squeezed into smaller spaces as the availability of commercial space falls and becomes increasingly expensive.

According to the Perth Office Space Use Survey Trends 2001 released by the Property Council this week, the average office space per employee in Perth’s commercial office market has fallen from 20.2 square metres to 19.1 square metres and is forecast to continue to fall to 18.8 square metres in 2001.

The falling workspace ratios suggest there is less room within tenancies to expand, providing further inducements to developers to begin projects.

The lowest allocation of space per employee was in the information technology and telecommunications, finance/banking and property services sectors with an average of 17.5 square metres per employee.

The highest allocations of space per employee were legal-accountancy and government, which both had 21 square metres per employee.

Corresponding with the drop in space for each worker is a drop in vacant or underutilised space within tenancies.

This hidden vacancy rate is expected to fall from 2.7 per cent in 2000 to 1.8 per cent this year.

“This reduction suggests any increases in employment will more readily translate into higher demand for commercial office space. All CBD grades anticipate sharp falls in hidden vacancy between 2000 and 2001,” the report says.

Respondents reported positive hiring intentions with 57 per cent predicting increased staff numbers, 20 per cent predicting no change and 18 per cent forecasting a decrease.

Demand for office space is forecast to increase in the CBD from 4.5 per cent between 1999 and 2000 to 4.9 per cent over the coming year.

The optimism among Perth tenants has spelt good news for fit-out companies. About 58 per cent of tenants in the CBD had a completely new fit-out when they occupied their tenancy, while a further 24 per cent received a partial new fit-out.

New tenants in Perth’s premium buildings were more likely to have a fit-out than those firms moving into B and C-grade buildings.

About 97 per cent of tenants in premium grade buildings received completely new fit-outs or partial new fit-outs. Only 80 per cent of tenants in A and B-grade buildings had no changes to existing fit-outs. In other grade buildings, 69 per cent of tenants made partial or completely new fit-outs before moving in.

Fit-out specialists Interiors Australia’s Murray Simcock said fit-outs were becoming more popular with new tenants because it was often a cheaper option.

“One of the things we’ve found when we are costing is it is always cheaper to gut it and start again because every business is different. It’s generally more cost effective,” Mr Simcock said.

The Office Space Use Survey contradicts several other reports including the Dun & Bradstreet Business Confidence Survey, which suggests declining business confidence.

Property Council policy officer Geoff Cooper said the survey reveals declining room for expansion within existing tenancies, which will help to reduce vacancy rates in the Perth commercial office markets further.

“The survey results showed a slowing in the decline of workspace ratios and a fall in underutilised vacancy in tenancies,” he said.

“This is positive for the commercial office market because any substantial increases in employment should be reflected in increased demand for office space in Perth.

“However, the results carry a note of caution for commercial property owners in Perth with 19 per cent of CBD and 32 per cent of West Perth tenants saying they would consider moving to a suburb outside of the CBD or West Perth.”

Overall, 13 per cent of CBD tenants and 15 per cent of West Perth tenants are planning to relocate in the next year.

Curtin University’s Dr Max Kummerow said the effect on total market demand of changing workspace ratios was significant. Changing from 20 square metres to 19 square metres per employee for example would be equivalent to a 5 per cent increase in available space, or several years of net absorption at recent growth rates.

“Put another way, the amount of CBD space freed would be about 64,000 square metres if there were a change in workspace from 20 to 19 square metres,” he said.

“Low rents during the early 1990s attracted some tenant to the CBD who might shift to suburban locations at lease expiry or when rents increase. Although most tenants prefer to remain in the same area, 20 per cent say they would consider shifting to other suburbs outside the CBD. This could moderate the potential for CBD rent increases and create opportunities for suburban office developments.

“An uncertainty is whether in the next year or two continued employment growth can be fitted into existing tenancies with further decreases in workspace ratios, or on the other hand, if these existing leased spaces are now filled to capacity.

“If so, employment increases would result in new leases and stronger increases in net absorption than in the recent past, despite slowing employment growth.”

Dr Kummerow said interest rate cuts and strong energy prices could create strong growth conditions in WA as there were many resource development projects in early stages awaiting favourable market conditions.

“The data suggests that there are lags in office demand. Sales pick up in a recovery first, then employees are added later filling up the vacancies with tenancies and creating falling workspace ratios,” Dr Kummerow said.

“As conditions tighten, stronger net absorption emerges as the macroeconomic cycle matures. However, once the macroeconomic cycle peaks, demand may tend to stall or even go backwards for a period of time until the next upturn.

“WA can expect further rent increases for premium grade space if the WA economy does reasonably well during 2001. The survey shows that there is less room within tenancies to expand, due to falling workspace ratios and falling hidden vacancies.”