The flight of occupiers to quality office spaces has continued to rise in the past year, with robust leasing activity evident via the number of deals transacted throughout the Australian market.

According to data derived from the Colliers Future of Office Demand Report, the amount of prime activity transacted from H1 2023 to H1 2024, as a proportion of all overall deals, has been the strongest based on H1 comparisons over the last five years (at 73 per cent). Through this we see tenants have been taking up the opportunity to relocate their offices at a significant rate and to upgrade to superior quality prime spaces and locations.

“It is very encouraging to see market rental growth continue to expand, as the flight to quality has seen occupiers continue to invest in more premium spaces. Relocation opportunities across Australia’s office markets has contributed to resilient levels of prime leasing activity over the first half of 2024, driven by occupiers pursuing a higher quality of office accommodation and taking advantage of lease terms on offer,” Managing Director, Office Leasing at Colliers, Cameron Williams, said.

“Continued momentum in the recovery of deal activity within the 3,000+ sqm size range, alongside consistent growth in SME activity is set to underpin another year of growth in gross leasing activity over 2024 overall.”

Whilst the total of overall national transactions (including primary and secondary) were slightly down from H1 2023 to H1 2024 (by -8.5 per cent), this was still higher than H1 22 at 2.2 per cent, noting that H1 2023 experienced an extremely strong period of transactions.

In the Report, Colliers also highlights the emphasis on employee experience as the largest shift in occupier decision making over the last 12 to 24 months and now accounts for around 15% of the decision making process according to Colliers. 

“Whilst the quality of office building, quality of office space and the cost and commercial parameters still underpins around half of the decision-making process, this has decreased in proportion with some of the weighting towards these components reallocated to the employee experience,” Sarah Hughes, National Director, Tenant Advisory | Occupier Services, said.

“This shift has primarily been driven by the more immediate impact of flexible working and bringing employees back to the office - and the longer term shift in societal values which now places more emphasis on employee health and wellbeing, fulfilment, productivity.”

Colliers also highlights the growing importance of location for occupiers, stating that the employee experience has become central to the occupier decision making process with the shift to a flexible workforce. Occupiers over the past 12 to 24 months have realised that 100% workforce does not need to be in the office 100% of the time. 

As a result, this new ‘pull-to-precinct’ dynamic focuses primarily on how the office brings the workforce together to collaborate, promotes company culture and offers a unique and beneficial working experience that cannot be created elsewhere.

In the Report, Colliers additionally notes that the Finance sector was responsible for the largest take-up by area of total office space transacted across Australian CBD locations, with a total of 30,815 sqm. This equated to 21 per cent of the total area of office space transacted in H1 2024.

In comparison, across metropolitan areas throughout Australia, the Health and Community Services sector was responsible for the largest area of the total amount of space transacted across Australian metropolitan locations, with a total of 18,251 sqm, comprising 16 per cent of all total office space.

"Demand in the Health and Community Services industry has been gathering pace and has been the most active over the first half of 2024, demonstrating heightened activity in the past year. Non-CBD office markets are especially primed to capture demand from the Health and Medical sector, with companies being close to population growth corridors and Health infrastructure, as well as now having the opportunity to lease more cost-effective space within quality assets,” National Director, Research, Joanne Henderson said.

Information Technology additionally featured in the top five sectors for both CBD and metropolitan transactions, with a total of 16,548 sqm, or 11 per cent of total office space for the former, and 6,482 sqm transacted, or 6 per cent of total office space, for the latter.

Colliers also reports a strong increase in companies rethinking how they utilise their office space to ensure it caters to a flexible workforce and is a desired location that fosters collaboration and underpins company culture.

It notes that as Generation Alpha (born between 2010-2024) enters the workforce, they are set to bring advanced technological skills and high expectations for digital integration in the workplace, in particular.

This generation will demand ongoing learning and development opportunities, while Generation Z, known for their tech-savviness and comfort with remote work, will most likely insist on more flexible working arrangements.

These demographic changes are expected to drive office sector transformations in order to suit the diverse needs and preferences of a multigenerational workforce. 

“As this shift occurs, office designs will most likely include ergonomic features and accessible facilities, including wheelchair accessibility, to serve an ageing workforce, while future generations are likely to benefit from increased use of technologies such as VR and drones. Flexibility and inclusive design will also become more prevalent,” Ms Henderson added.

To find the the full Colliers Future of Office Demand Report.