The recent reports of job losses across the banking sector have created speculation about the impact on demand in the Sydney office market, given its heavy weighting to the sector.
While the banks face a number of challenges this year, the reported job losses are unlikely to have a significant impact on domestic office markets. That's because real estate (particularly moving to a new building) is a long-term decision - usually a 10-year-plus strategy - whereas business cycles (and financial impacts) are more often than not shorter term, say three years to five years. It is worth remembering that the actual spend by banks on their staff accounts for a much larger slice of total operating costs than their real estate occupancy.
With many banks already adopting new flexible working arrangements, particularly activity-based working, we believe this will result in less excess space coming onto the market during difficult economic times. Activity-based working allows companies the flexibility to accommodate fluctuations in headcounts without having to release surplus space following cuts in staff numbers or increasing their real estate footprint as a result of hiring new people.
Across corporate Australia, as headcounts diminished during the global financial crisis, surplus space came onto the market. However, what is different now is that most of the banking and larger financial institutions have implemented strategies to consolidate their space requirements and build in this flexibility. Macquarie Bank was an early mover (to Shelley Street), as was Westpac to its vertical campus in the western central business district. More recently, the Commonwealth Bank has moved to Darling Quarter and ANZ will soon move to Pitt Street.
In a corporate real estate survey last year, Jones Lang LaSalle found the GFC stimulated the implementation of alternative workplace strategies such as activity-based working. The continued focus on cost control since the GFC will build a strong case for these strategies to flourish, providing companies with flexibility and the ability to meet the ebb and flow of space requirements. We do not expect to see a reversion to pre-GFC operating budgets for real estate and the practice of increasing or decreasing space when headcount expands or contracts. This would mitigate the impact on office demand of any job losses in the sector.
Further economic news this week - the Reserve Bank's decision to leave interest rates unchanged and disappointing retail trade results for the Christmas period - are an indication that this year will be challenging. Jones Lang LaSalle's office data for the fourth quarter of last year showed minimal impact from the global financial market volatility, but we envisage this year will be another demanding one for business.
Tony Wyllie is the Australian head of corporate solutions, transactions and corporate consulting for Jones Lang LaSalle.
