Three years after COVID lockdowns: The evolution of the office workplace

Late 2021 saw the last of the COVID-19 lockdowns in Australia, specifically, Melbourne, which experienced some of the longest lockdowns globally, ended its final major lockdown on 22 October 2021. Just over three years later, what does the landscape of working from home (WFH) and subsequent office workplaces look like in Australia?

The evolution of WFH

The demand for workplace flexibility has been growing since 2015, but the COVID-19 pandemic acted as a catalyst, accelerating this trend. According to the Australian Bureau of Statistics¹, 36% of employees regularly worked from home in August 2024, slightly down from 37% in 2023 and 40% in 2021. To put those figures into context, pre-COVID-19 levels were around 30-32%.

The main reasons for working from home in 2024 were flexibility (25%), operating a home-based business (23%), catching up on work after hours (21%) and saving money/ spending less time commuting (12%). Interestingly, there is no consensus on the optimal number of days to work from home; older generations tend to prefer more time in the office compared to Millennials and Generation X. A 2024 Wellness at Work study² by Australian HR platform Employment Hero found people who spent more time WFH improved their work-life balance and mental health. 73 per cent of professionals believe all companies should offer flexible work options to employees³.

Employers may have a different view.

The KPMG 2024 CEO Outlook⁴, published in November 2024, revealed that 83% of the 1,325 CEOs surveyed expect a full return to the office by 2027. This marks a significant increase from the 64% who held this expectation in 2023. Again, this expectation only increases with age, as indicated in the chart below.

In late 2024, several organisations mandated a return to the office. For instance, Amazon requires employees to work from the office five days a week starting 2 January 2025, to enhance collaboration and company culture. Dell increased its office mandate from three to five days a week in September 2024, citing productivity and collaboration as key reasons. Flight Centre and Tabcorp also mandated full-time office work to foster a “winning culture.” The public sector is following suit, with the NSW Premier’s department directing public servants to primarily work from the office.

Many CEOs employees who return to the office with favorable assignments, raises, or promotions⁴. However, some employees prefer the convenience of working from home, even if it results in fewer promotions. A survey by Deel found that 45% of respondents would consider taking a pay cut for a fully remote job, and 75% of individuals under the age of 54 indicated they would leave their job if flexible work options were not available⁵.

Clearly, there is a significant gap between employees’ preferences and employers’ willingness to support remote work. As this tension continues, it becomes increasingly important for employers to create office environments that attract employees. So, what does the optimal modern office look like?

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The optimal modern office

Location and surrounding amenities – As employers strive to lure their employees back into the office, factors such as office location, commute time, and access to public transport have become critical. Local amenities like cafes, bars, and restaurants also play a significant role in attracting employees.

Adaptable workplace design – Flexible, multi-use spaces are essential, including dedicated areas for individual online meetings and focused work. This adaptability supports various work styles and needs.

Social and collaboration spaces – With collaboration being a key reason for bringing people back to the office, spaces that facilitate in-person collaboration and informal social interactions are a must.

Office technology – High-quality video conferencing tools, reliable Wi-Fi, and collaborative software such as apps, which inform when colleagues will be in the office, are essential to support seamless communication between remote and in-office employees.

Health and wellness – Environmental features like natural light and better air quality now rank highly. Incorporating wellness rooms, fitness areas, and ergonomic furniture can enhance employee well-being and productivity.

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Adapting to meet the needs of the market

Snapshot of a Cromwell office asset

Since acquiring 207 Kent Street in 2013, Cromwell has continuously adapted the property to align with tenant needs. Our integrated property management model ensures that we manage properties in accordance with our investors’ interests while meeting tenant expectations. Regular market analysis and tenant engagement inform strategic enhancements that maximise occupancy, satisfaction, and income potential.

207 Kent Street, Sydney

Location and amenity – The 20-level A-grade property occupies a premium position overlooking Darling Harbour and is adjacent to Sydney’s Barangaroo office precinct, Australia’s new hub for global financial and professional services. It is a short 5-minute walk from Wynyard Station via Wynyard Walk and is close to bus and ferry services.

Adaptable workplace design – Early on, we recognised that the COVID-19 work from home experience would permanently alter tenant expectations and office space use. On Level 14, we faced a challenging floor plate shape, which required innovative thinking to redesign the space for post-pandemic needs. At that time, few tenants had witnessed or understood what an optimal post-COVID workspace would entail. To aid decision-making, prospective tenants needed to see a modern fit-out showcasing flexible multipurpose zones, open collaboration areas, workspace options, breakout entertainment areas, retreat spaces, and smart IT connectivity.

By providing designers with a reverse brief and budget, we met these requirements and illustrated what an optimised space could look like. This effort resulted in a new 5-year full-floor lease with ERM, signed just four weeks after practical completion. Since then, we have modernised several other fit-outs in the building, achieving positive leasing outcomes.

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Social and collaboration spaces for tenants – Recently, we repurposed a previously underutilised and challenging-to-lease area on Level 6, transforming it into a versatile third space for tenants. This area now includes a fully equipped kitchen, breakout areas, a business lounge, and two multifunctional and configurable rooms available for use by all building occupants.

Another key area for socialising and collaboration is the lobby, which has seen continuous enhancements over the years. The latest upgrade transforms it into a vibrant entry space that offers a sophisticated yet welcoming first impression. Designed to be functional for both tenants and visitors, the lobby features enhanced wayfinding, various seating configurations to accommodate different needs, and local Indigenous artwork, including a stunning 5m x 10m piece by a Gadigal artist.

Health and wellness – Cromwell has adapted the end-of-trip facilities at 207 Kent Street to cater to the increasing number of tenants who prefer to ride or walk to work or seek a quick workout during lunch. We transformed a dated, dark end-of-trip (EOT) facility on Level 5 into a bright, inviting space for daily use. The upgraded facility now boasts doubled amenities and, through innovative design solutions, improved energy-efficient lighting and high-quality ventilation. These enhancements have resulted in high tenant satisfaction and positive feedback from leasing agents and prospective tenants.

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What do changes in working patterns mean for office landlords?

Growth in occupied space

The increase in workers returning to the office is contributing to improved conditions in the office property market and a more stable environment. Our December quarterly update for direct property highlighted another positive quarter for office space fundamentals. JLL Research data shows over 30,000 sqm of positive net absorption was recorded across major CBD markets, taking the total to over 160,000 sqm for 2024. This marks the strongest year for net demand since 2019.

Tenants shifting space requirements

CBRE Research⁶ analysed around 880 leasing decisions in Australia since 2021 to understand office tenant behavior. In 2024, smaller tenants continued to expand due to increasing headcounts and the need for collaborative spaces. Larger tenants, however, have been contracting their footprints due to hybrid work models, though this trend is slowing. By early 2024, the contraction rate for spaces over 3,000 sqm decreased to 13% from 21% in 2023. Tenants with 1,000 to 3,000 sqm spaces have shifted to a 5% growth in 2024, compared to a -1% average in 2023. This indicates that many larger tenants have already “right-sized” their spaces to match the number of in-office employees, ensuring efficient space utilisation.

Diverging performance

Not all buildings have the location and amenity benefits tenants are seeking, or the physical attributes (e.g. layout/size) necessary to provide a variety of flexible spaces including wellness facilities. As tenants exercise their power of choice, assets with the right ingredients are outperforming those that are unable to evolve in line with shifting preferences. The widening gap between ‘winners’ and ‘losers’ is evident across all office segments, from B Grade to Premium.

The ability to drive outperformance through expert asset management has also intensified. Shifts in tenant preferences and regulatory requirements are occurring faster than before, requiring an active approach to ownership which stands out from the pack and underpins leasing success.

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Conclusion

The post-COVID office landscape in Australia has undergone a significant transformation, driven by evolving employee preferences and employer expectations. While remote work remains popular, with many employees valuing flexibility and improved work-life balance, a notable shift towards hybrid and in-office work is evident. Employers are increasingly mandating office returns to foster collaboration and company culture, despite some resistance from employees.

The optimal modern office now prioritises location, adaptable design, social and collaboration spaces, advanced technology, and health and wellness features. These elements are crucial in attracting and retaining talent, ensuring productivity, and maintaining high occupancy rates.

For office landlords, the return of workers to offices is stabilising the market, with positive net absorption figures and a trend towards upgraded premises. Improved demand is flowing to assets that have evolved in line with shifting preferences, resulting in a performance gap between the haves and have nots. Economic conditions, including lower inflation and anticipated interest rate cuts, are expected to support leasing demand and capital growth.

As the workplace continues to evolve, the ability to adapt and meet tenants’ changing needs will be key to success in the commercial property market.

Footnotes

Working arrangements, Australian Bureau of Statistics (Aug-24)
Wellness at Work Report, Employment Hero (2024)
Have the Rules of Etiquette Changed in Today’s World of Work?, Deel (Nov-24)
KPMG 2024 CEO Outlook: Top CEOs see through global turbulence by betting big on AI, KPMG (2024)
Changing patterns of work, Australian Institute of Health and Welfare (Sep-23)
CBRE Research – Australian Office, CBRE (Q3-2024)

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Three years after COVID lockdowns: The evolution of the office workplace

The evolution of WFH

The optimal modern office