19 November 2020

The Materials sector – which includes the major mining companies – has led the charge this year in expanding its office footprint, continuing to take more CBD space.

This means it is the only ASX100 group to expand its office footprint in the first nine months of the year, growing by about 7,500sqm and buoyed by the relative resilience of the major mining companies. Conversely, the Communications Services sector has contracted the most since the beginning of 2020, reducing Its footprint by 29,000 sqm.

These are two of the key trends we discovered when compiling our new Office Space Report – the first of its kind to analyse Australia’s space trends associated with ASX100 companies, some of the country’s biggest office occupiers.

ASX listed companies have always been attractive tenants for major office landlords in the Australian market, due to their relative security, financial transparency and prestige. This new report explores how the impacts of a turbulent 2020 have affected the top Australian listed companies’ national office footprint by sector and location and what impact this might have on the future of the Australian office market.

For instance, our analysis also revealed that ASX100 companies occupy just 13% of the office space in Australia’s major capital cities – meaning that the big end of town might have less impact than previously thought on office space trends, with a diverse range of listed and unlisted occupiers influencing the overall market.

While the COVID-19 pandemic has resulted in significant volatility for equities markets around the world, in examining the Australian market, we can see a clear correlation between ASX100 sector performance and office occupancy trends, with the Materials sector expanding its footprint amid a 1.7% rise in the ASX Materials Index since the start of the year.

In contrast, the ASX Financial Services Index has fallen by 17.5% since the start of the year, coinciding with a 23,000sqm reduction in the amount of space occupied by Financial Services companies.

Our expectation is that companies within the Financial Services sector are likely to contract the most given their large footprint and cost containment pressures and Energy companies could potentially look to contract in light of low oil prices, which generally delay future investment decisions. However, Materials will likely remain one of the more resilient sectors as countries around the world boost investment in infrastructure, which will trigger demand for resources, while the health sector is also expected to show future resilience.

Social distancing and associated workplace health guidelines are another consideration, which could partly offset future office space contraction. We’ll be continuing to monitor this trend to understand how Australia’s largest listed companies are proceeding with their workplace strategies.


 

ASX100_Net_Absorption_by_Sector_YTD_2020

Other take outs from the Office Space Report include: 

  • The Financial Service sector accounts for just over half of the office space occupied by ASX100 companies, with the “Big 4” banks accounting for about 65% of the sector’s footprint. Interestingly, Financials only account for about 27% of the market cap of the ASX100 but occupy 54% of the office space
  • All other sectors account for less than 10% of the total footprint, with the Materials sector being the next largest office occupier, making up 8% of the office space leased by ASX100 companies, despite representing 20% of the market cap. 
  • Melbourne has recorded the largest contraction of ASX100 tenants in 2020. 
  • Sydney has also seen contraction of 21,200 sqm while Brisbane has experienced negative net absorption of 11,600sqm. 
  • The top listed Australian companies prefer larger floors, with 73% of the office space occupied comprising floor plates greater than 1,500 sqm, and close to 53% of the footprint involving floor plates greater than 2,000sqm.
  • Unsurprisingly, ASX100 companies prefer prime grade (premium and A grade) office buildings, accounting for 92% of their total footprint.

Please contact Mark Curtain for the full report