The shift back to physical workplaces is gaining momentum, driven by corporate leadership and concerns over productivity. A KPMG survey from late 2024 found that 83 per cent of corporate leaders globally expect a full return to the office within three years. In Australia, eight in ten CEOs surveyed by KPMG believe remote work will be phased out by 2027.

Major organisations like Woolworths and Coles have mandated hybrid work policies requiring employees to be in the office at least three days a week, while Commonwealth Bank, along with other major employers like Origin Energy, Suncorp and ANZ, has tied office attendance to bonuses and disciplinary measures, reinforcing the push for in-office work. Additionally, the Australian Bureau of Statistics (ABS) reported that as of August 2024, 36 per cent of Australians were still regularly working from home, down from 37 per cent in 2023.

With the average employer-mandated office attendance reaching 3.64 days per week, demand for office space is rising again. However, investors looking to capitalise on this return-to-office trend must focus on properties offering premium facilities and modern, sustainable infrastructure.

The demand for premium office spaces

Knight Frank’s latest report highlights that office tenants are prioritising modern, well-located buildings that enhance employee experience to encourage the return of staff. Additionally, Environmental, Social and Governance (ESG) commitments are further driving the need for sustainable and technologically advanced workplaces.

Vanessa Rader, Head of Research at Ray White, emphasises that ESG compliance is no longer optional, with corporate Australia now viewing it as a non-negotiable requirement. Tenants, especially in city locations, expect features like end-of-trip facilities, sophisticated climate control, smart building technology and high NABERS (National Australian built environment rating system) ratings. Buildings unable to meet these standards risk becoming stranded assets, leading to increased demand for office upgrades and renovations.

As the shift back to a more office-centric work environment continues, supply at the top end of the market will tighten due to a slowdown in new developments. To attract employees back to physical workplaces, businesses are increasingly investing in smaller boutique office spaces that offer:

• Flexibility and scalability: Boutique spaces offer more flexible lease terms, ranging from 6 months to 3 years, allowing businesses to scale up or down as needed.
• Prime locations: They provide access to prestigious business districts without the high costs associated with traditional leases.
• Turnkey solutions: Boutique offices offer fully serviced, plug-and-play workspaces that require minimal setup time, allowing businesses to start operating immediately.
• Customisation: These spaces provide tailored office layouts, facilities and membership options to suit the needs of both small businesses and large corporations.
• Enhanced facilities: They often feature unique facilities like outdoor areas, alternative seating options, on-site gyms and specialised rooms like podcast recording studios.
• Technology integration: Boutique spaces incorporate advanced technologies like IoT and AI to enhance user experience and streamline operations.
• Community and networking: While maintaining privacy, these spaces offer opportunities for networking and collaboration, creating a balance between isolation and interaction.
• Hybrid work support: Boutique offices cater to hybrid work models, offering multiple location options and flexible arrangements.

The investment opportunity: Upgrading office assets

While boutique office spaces are expected to see higher demand, many second-grade office buildings will require substantial upgrades or renovations to remain competitive. Commercial property investors should prioritise these renovations to align with the market's flight-to-quality trend, as outdated office assets risk becoming vacant or losing value.

According to the Investa Inside Research Office Market Outlook 2025, leasing demand is expected to outpace supply for the first time since 2020. The ‘flight to quality’ is driving strong demand for premium office assets, while capital values are stabilising after a period of decline.

Investors upgrading or renovating office spaces to meet modern tenant expectations can benefit from substantial depreciation deductions to enhance cash flow. Capital works, including structural improvements, can be depreciated over 40 years, while plant and equipment assets, like carpets, lighting and security systems, can be written off over the effective life of the asset.

As employers enforce stricter attendance policies, this return-to office trend is creating a strong investment opportunity in high quality, premium office assets, with boutique office spaces, offering flexibility and top-tier facilities, emerging as a key strategy to entice employees back.

For more information on depreciation deductions available for substantial upgrades and renovations to commercial properties, contact BMT Tax Depreciation at 1300 728 726 or request a quote.

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