Employers’ return-to-office rhetoric has stalled and some buildings are only 75pc of pre-Covid volumes

Plenty of staff still prefer to work from home despite companies’ demanding they return to the office, and that’s leaving many buildings largely underused, a report from NAB shows.

Many employees see working from home as an acceptable trade-off for more modest pay increases.

As temperatures sink in major cities and seasonal colds strike down workers, the country’s office towers are all but deserted under what some analysts now call the new normal.

While financial services companies have ramped up the back-to-office rhetoric and staff fearful of job cuts during a slowing economy are heading in, the ranks of full-time attendees have dwindled.

The problem is now hitting big landlords with office occupancy levels stalling at much lower levels in the wake of the pandemic, which showed that a wide range of routine work could be done from home.

The big shift has dramatic implications not only for landlords who own skyscrapers but also the small businesses which depend on regular office traffic, and the bars and restaurants which draw their custom from nearby towers.

In a major report, the National Australia Bank says that although the return to office picked up as fears of catching Covid-19 eased, the trend has flattened out over the past year.

NNAB economist Tapas Strickland.

NAB head of market economics Tapas Strickland and credit research analyst Evy Noble said that while office attendance improved over the past year, it appeared to be stalling at around 75 per cent of pre-Covid levels in Sydney.

They pointed to the city’s flattening of train station usage over the past year. Recorded taps on to the network at inner city railway stations hovered at 65-78 per cent of pre-pandemic rates, and they have been stuck there since July 2023.

And the beginning and end of working weeks show a sharp drop-off. Traffic cameras in Sydney and Melbourne show a spike between Tuesday and Thursday.

Pedestrian counts on Mondays and Fridays are around 70 per cent of peak days in Sydney, and Melbourne follows the same pattern.

Real estate firms have also called out the switch. CBRE research on office occupancy levels showed in the first quarter of this year average occupancy reached 76 per cent compared with pre-Covid levels.

Perth and Adelaide are the strongest at 93 per cent and 88 per cent respectively in the quarter. But Melbourne lags behind with occupancy at just 62 per cent, which plunges as low as 43 per cent on Fridays.

NAB’s report said that Canberra’s office market, which is dominated by government tenants, was affected because federal public servants under the enterprise agreements do not have caps on working from home.

In Melbourne, repeated lockdowns during the height of the pandemic normalised working-from-home arrangements.

The switch in how people are working is feeding through to the vacancy rates for prime office space in Sydney and Melbourne. They climbed to a record high for Melbourne in the first quarter of 2024 and are well above pre-Covid levels. By contrast, prime vacancy in Brisbane has declined sharply since late 2022. The shift has now become structural rather than merely linked to a slow economy.

The NAB report said the once reasonably close correlation between office space absorption and the bank’s business conditions survey was snapped from 2022, with a large divergence through to the first quarter of this year.

“This simultaneous negative absorption or oversupply of office spaces and positive business conditions can be primarily attributed to the impact of the working from home trait,” the report said.

Hybrid working was increasingly considered normal, which the bank said workers were using as compensation for more moderate pay increases. As a result, the analysts said that difficult market conditions faced by listed office A-REITs might have further to run.

But there is some hope; office attendance in Australia is higher than the US, where billions of dollars have been wiped off the value of office towers.

US office attendance is running at about half of pre-pandemic levels. Australia has a more urbanised population, better public transport in most cities and shorter commuting times and distances in many cases.

Cook Commercial Investment Group principal Michael Cook said there were vastly different dynamics at work in Australia compared with the US. He said that locally, well-paying white collar jobs were available on a work-from-home basis but it was difficult to have a great career in the suburbs.

“There’s nothing wrong with that, but if you want a career, you have to be in the office,” he said. “Ask anyone from Macquarie, Morgan Stanley, Goldman Sachs, or any of the major law firms.”