Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 457

The great divergence: the evolution of the 'magnetic' workplace

The pandemic has had profound implications for the way we use real estate. As we transition into a post-pandemic environment, tenant preferences and behaviours are now providing more certainty to the outlook of our major real estate sectors.

Evolution of office space between two extremes

The office sector is emerging from one of the largest experiments workplaces have undergone, manifesting from mandated social distancing requirements which forced people to transition from working in offices to homes. This underpinned a proliferation and advancement of communicative technologies while broadening the perceptions around working remotely. The speed at which this transition occurred attracted significant levels of commentary and polarised opinions. Overarching views ranged between two extremes: ‘the office is dead’ versus ‘the pandemic was temporary and will have no impact on the sector’.

With the benefit of time and evidence from market activity, we can comfortably dispel both these extreme perspectives. The office is not dead but is certainly undergoing changes as tenants adapt to working in a COVID normalised world. The counterbalancing elements from those two extreme perspectives will influence the outlook of the sector, generating diverged performances across various assets. 

Looking through the lens of tenant leasing enquiries and actual leases being signed, it’s evident that the market rebound has accelerated quicker than originally anticipated. The recovery in tenant demand advanced despite the COVID related lockdowns across the major markets in the second half of 2021. Occupied office space (as measured by leased spaced) across national office markets increased by 185,700 sqm over the December quarter - the strongest result since September 2018.

Moreover, sentiment surveys also reflected the growing appetite for office space from tenants. Demand drivers such as new set-up and expansion as the economic recovery gathers momentum have increased by 119% since May 2021 across the region (Source: CBRE Asia Pacific Leasing Market Sentiment December 2021).

A focus on quality space

However, headline figures masked one important trend. We are witnessing a significant divergence based on building quality. Prime sector occupied stock posted the highest quarterly growth in tenant demand since December 2007, up 228,000 sqm, with strong results across both CBD (124,600 sqm) and metropolitan (103,800 sqm) markets. Over 2021, Prime (higher quality) occupied space increased by 497,000 sqm, the largest annual increase since 2016. Over the same period, Secondary (lower quality) occupied space reduced by 73,700 sqm, highlighting the markets focus on a flight to quality (see chart).

Changes in Office CBD occupied space, by asset quality
Leasing volumes have evidenced the strong demand for high quality office buildings through the COVID recovery.

Workplaces are now more than ever a statement of purpose. The quality of an office will be a pivotal part of attracting workers and promoting collaboration, learning, innovation and productivity. Quality offices will host experiences and environments which cannot be replicated working remotely.

The dawn of the magnetic workplace

The industry term for this development is 'magnetic workplace'. Businesses will need to deliver magnetic workplaces to incentivise visitations while attracting and retaining employees. The Australian unemployment rate is approaching 50-year lows (currently at 4%), so the battle for talent is set to intensify. Further, extended periods of remote working have generated higher reports of cultural decay and growing mental health challenges resulting from lower social interaction with colleagues and ineffective onboarding and induction of new staff.

At Charter Hall, we believe a holistic perspective should be adopted for an employee experience. The asset quality, amenity and technology are essential for creating an environment which supports an employee’s productivity and wellbeing. This requires a collaborative approach that includes an asset’s offering beyond just office space and includes the retail offering and end of trip facilities (things like change rooms and bicycle racks). It can also extend to the surrounding area.

Establishing precincts that enhance the overall offer and amenity are also becoming important. Understanding this optimal offering requires a deep knowledge of our tenant customers, and not just the industries they operate in and their revenue potential, but their values, personality and culture and how we can work with them to create environments that deliver workplaces that support productive collaboration. As a business, we have certainly benefited from our on-going partnership and engagement with more than 2,500 tenant customers, many of whom have space in more than one property sector with us, to deliver quality workplace eco-systems. Nonetheless, it will be crucial that we continue to adapt and evolve in line with our tenant customers workplace requirements.

Buildings assessed in a broader context

The impacts of the pandemic also encouraged many organisations to assess other elements that resonate with their business objectives and company purpose. This has subsequently advanced the standards relating to sustainability and governance, with many tenants and investors increasing the priority on sustainable buildings. These requirements have been further amplified by the rising costs of energy.

For owners of lower quality buildings, these requirements will accelerate asset obsolescence. These landlords will need to contend with the dramatically changing requirements around workplace design and the escalating costs of repurposing these assets to remain viable. By contrast, the combination of these factors will support the continued occupier and investor demand for quality assets, contributing to the divergence of performances across the market.


Steven Bennett is Direct CEO and Sasanka Liyanage is Head of Research at Charter Hall Group, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any person, and investors should take professional investment advice before acting.

For more articles and papers from Charter Hall, please click here.



Hey boomer, first home buyers and all the fuss

The looming excess of housing and why prices will fall

Whoyagonnacall? Five more risks buying off-the-plan


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Meg on SMSFs – More on future-proofing your fund

Single-member SMSFs face challenges where the eventual beneficiaries (or support team in the event of incapacity) will be the member’s adult children. Even worse, what happens if one or more of the children live overseas?

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Latest Updates


'It’s your money' schemes transfer super from young to old

Policy proposals allow young people to access their super for a home bought from older people who put the money back into super. It helps some first buyers into a home earlier but it may push up prices.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.


Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.


Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.


Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.