_Achieving more with less: a delicate balance between workplace experience and cost pressures

Australian occupiers continue to grapple with how best to adapt their workplace settings to suit evolving business needs and workstyle preferences. In a complex environment for decision making, real estate options are viewed through the lens of needing to provide the optimal workplace experience, while also providing excellent value for the investment outlay.   

There is a clear tension between these two overarching objectives, as in most cases a substantial improvement in workplace experience will not be achieved without additional investment. This tension is laid bare in our inaugural (Y)our Space survey of Australian occupiers, and how businesses deal with it will be central to shaping the evolution of workplace strategy in 2025.

For many years occupiers have been grappling with competing pressures on workplace strategy. The advent of new technology, the related pressure to increase productivity, an increasingly tight labour market with skills shortages for key roles, and the preference shifts of a multi-generational workforce have combined to ramp up corporate expectations on the quality of the workplace experience.

On top of this, the pandemic raised new questions on the appropriate balance between office attendance and home working and the extent to which pre-existing workplace strategies had been disrupted. One of the most significant disrupters is the rapid and widespread adoption of digital technologies and artificial intelligence, which create new opportunities to collaborate across different locations, time zones, and cultures.

As a result, occupiers are adapting to change on several fronts. Most of these changes ultimately put a higher premium on the quality of the workplace experience, motivating many tenants to upgrade. This is clearly reflected in our survey results and at market level has been illustrated by the superior leasing performance of prime assets in the best locations.    

We have also witnessed a substantial adjustment in workplace strategy, with 65% of respondents reporting they have changed the mix of space in their workplace over the past three years. The changes made vary widely, with no one-size-fits-all approach, but many occupiers have opted to designate more of their space for informal collaboration and increase the number of meeting rooms. There has also been a concerted push to enhance the quality of client spaces and audio-visual technology to boost the capability of meeting rooms and event and training spaces.

Looking ahead, occupiers expect to see overall occupancy numbers continue to tick up, which will continue to ramp up expectations of the quality of the workplace experience. Alongside this, however, is the spectre pressure to reduce costs, which ranked second on the list of strategic priorities – up from fourth two years ago – and was cited by nearly 50% of respondents as a major consideration, no doubt reflecting cautious sentiment and a sluggish economy over the past 12 months.

Corporates are wary of the potential for weak consumer spending to weigh on the economy and drag on both near term profitability and longer-term plans to boost productivity. In addition, higher construction costs and higher incentives have shifted the financial metrics driving the stay versus go decision faced by occupiers. A high level of incentives can still be obtained on lease renewals, making staying put more attractive, while steep rises in material and construction costs have driven up the cost of new fitouts.

In the short-term cautious sentiment will win out, with a higher-than-normal proportion of tenants likely to opt to stay put. Those that do opt to move will be seeking good quality fitted space that can be adapted to suit a new user with relatively little cost.

By late 2025, however, we expect that more tenants will be opting to move once again, as confidence picks up off the back of an improving economy and the prospect of a tightening supply dynamic starts to influence decisions. Despite rising costs, occupiers will have an eye on the need to future-proof their workplace and secure higher quality space ahead of the competition.

Read Knight Frank’s (Y)our Space report here.