White-collar industries underpinning demand for office space

White-collar industries underpinning demand for office space

7 February 2020

In more news from Dexus, this week they also released their Australian Real Estate Quarterly Review Q1 2020, which provides an outlook for Australia’s main property markets.

Peter Studley, Dexus Head of Research, said: “While issues such as the Australian bushfires and Coronavirus have increased uncertainty about the broader economic outlook, there are reasons to be positive about the white-collar industries which underpin demand for office space.”

Conditions in the finance and business services industries are much more positive than in many other sectors, including retail and construction.

In the November 2019 NAB monthly survey of business conditions, the finance and business services industries recorded a positive score of 12 compared to an all-industry average of just 3. The higher score represents better conditions for trading, profitability and employment.

This relative performance was also reflected in recent employment data which showed 99,800 jobs were created across the finance and business services industries in the year to November 2019.

In the year to September 2019, output growth in the business services industry was a credible 3.4% compared to the all-industry average of 1.8%.

“These industries are traditionally big users of office space, with the finance and business services industries occupying approximately 41% of the floor area in Sydney CBD.

“The growth story for office occupiers may be brighter than the headline economic data implies,” said Mr Studley.

Here’s a summary of some of the reports key findings.

Investment criteria

Australian GDP growth moderated over the past year and is forecast to remain below average at around 1.8% per annum in FY20 before improving FY21.

Australia’s bushfire crisis is expected to have major environmental and social impacts. However, the overall economic impact is likely to be small with Goldman Sachs estimating a 0.3 basis points hit to growth in the short term followed by a boost to growth from rebuilding efforts. If there is a surprise in store it is most likely to be via a lull in tourism.


Transaction activity has sustained its positive momentum with 2019 volumes reaching a record high of $34 billion.

Office continues to be the most active sector accounting for two thirds of total volumes. Industrial transactions are down 27% since 2016 despite strong investment demand because stock remains tightly held as investors seek to grow their exposure.


Equity markets performed well during the year with a 23.4% return.

The strong performance was driven at the back end of 2019 through easing trade war tensions, Brexit optimism and the prospect of continued growth in the US economy as interest rates moderate. A-REITs had a strong year, returning 19.4%, however the index weakened mildly in the last quarter due to a lift in 10 year bond yields which saw a mild sell off in defensive assets.


Office markets nationally recorded positive rent growth in the 12 months to December 2019, with Melbourne CBD leading the charge (effective growth of 8.2%).

While weakness in the broader economy and a decline in job advertisements would seem to pose a risk for office demand, business conditions in office using industries such as finance and professional services remain above the all-industry average, providing Australian office markets with a degree of resilience during this period of uncertainty.


The failure of the WeWork IPO last year has focused attention on the risks associated with the coworking sector.

Coworking has been a major part of office demand accounting for 18% of CBD office take up nationally over the past five years. While some have conjectured that a lull in coworking demand could reduce overall demand, the reality is that coworking is mostly accommodating demand that would otherwise be there from the underlying sources (e.g. IT, business services, finance etc).

The Coworking sector is growing its share of total office stock but at circa 3% of the Sydney and Melbourne CBD markets, remains at low levels by international standards. For example, several Asian cities have circa 4% coworking and Central London has circa 6%.

WeWork is the largest player, comprising 48% of coworking take-up over the past three years. Despite its rapid growth, WeWork still only accounts for 0.8% of total office stock nationally – which mitigates risks to the overall market.


Industrial metrics continue to move positively. Land values have risen strongly and investment demand has pushed up values for industrial investments. Prime rents continue to grow in the major east coast markets, although a competitive market for pre-leased product has constrained the level of growth achieved.


The Australian retail sector continues to muddle through in an environment of subdued spending growth. Centre performance remains variable with a large gap in performance between best and worst performers. While hard to generalise, city retail, dominant regionals and good convenience centres have tended to outperform the average.

The full report can be downloaded here.