Office downsizing becoming a trend: What’s driving it?

Significant shifts in the Australian CBD office markets have been occurring over the past four years, and the reasoning is glaring.

According to a study conducted by ResolveXO, all CBD markets across Australia have witnessed the trend of office contractions between 2020–2023, reflecting of the profound structural changes induced by the COVID-19 pandemic within the office sector.

The report highlighted the fluctuation of office sizes across different industries and cities. The downsizing is becoming alarming, with 2022 marking the year as the most significant contraction in office space over the four years, with all CBD markets experiencing reductions in average office size.

So why is this happening? The analysis points to a sustained preference for high-quality office space, with tenants favouring prime and refurbished character buildings over less desirable options. Hybrid working roles and remote roles have also been pinpointed.

Kristina Mastrullo, head of research and property strategist at ResolveXO, stated: “In 2023, the research noted a plateau in office size reductions, indicating a potential stabilisation as working practices are decided upon. Despite a rise in relocations last year, which would typically suggest larger reductions when considering recent history, the Australian CBD office market experienced the lowest level of contraction with a decrease of only -5 per cent.”

Although the reduction trend has proven to be large, 2024 is showing an early indication of perhaps slowing this trend, with businesses driving for stability when it comes to scheduling for hybrid, in-office or remote work.

“The first quarter of 2024 has already shown signs of stabilisation as companies solidify their work arrangements, be it flexible, hybrid or traditional office model. However, economic uncertainty and an increasing number of stranded assets are key drivers, as continued structural change is expected in the Australian office market,” said Mastrullo.

With the report showing that Adelaide and Melbourne recorded a 31 per cent reduction, it will be interesting to see if stability alone by businesses can counteract that trend. If economic uncertainty continues in 2024, it will not be a surprise to see these reductions continue or even rise.

Kace O'Neill

Kace O'Neill is a Graduate Journalist for HR Leader. Kace studied Media Communications and Maori studies at the University of Otago, he has a passion for sports and storytelling.