Demand for urban office space is changing: cities need more flexibility

A co-working space. Image: StartupHub/Wikimedia Commons.

What does a good office look like? When cities are thinking about intervening in their city centre office market, the temptation will be to simply build more office space. This will be the right call in some cities, but others may already have a plentiful supply of offices. In these places, the quality of the existing city centre office space will be more important, as well as the extent to which it supports the growing trends for co-working and flexible space.

But before deciding how and when to intervene, cities need to first figure out the specific gaps in their local office market where private developers aren’t responding to existing demand. There’s no single national office market, and the quality of offices on offer varies a lot across the country.

The map below – using data from the Centre for Cities’ recent report Building Blocks: the role of commercial space in Local Industrial Strategies – shows that while 39 per cent of offices in Southampton city centre is of a high quality, this drops to only 9 per cent in Coventry and Leicester.

Source: Non-Domestic Energy Performance Register 2018.

But while this data shows the quality of office buildings, it doesn’t tell us much about what occupiers want from offices. The value of offices is determined by the location, condition, and the amenities they are able to offer to occupiers, and understanding the services occupiers are demanding is key for any office market.

One growing trend in office space is the rise of co-working. Collaborative spaces such as WeWork have recently expanded in London and Manchester and in other large cities around the world.

These have two main advantages for businesses – knowledge spillovers and more efficient use of commercial space. Freelancers can rent desks in these offices, devour free snacks and coffee, and meet and do business with other enterprises who have sat down right across from them. Start-ups and larger firms also use the flexibility to easily acquire (or reduce) desks as their needs change, squeezing as much value as possible out of city centre locations by not paying for excess commercial space.

But it’s not just the big cities which are seeing office space change. In our research for the Building Blocks report, we were struck by how many other cities across England and Wales are already responding to occupier demand by providing features such as co-working or ‘easy in, easy out’ flexible leases. Warrington, Bradford, and Bristol are all embarking on co-working spaces of their own.


Demand for these innovations in office space is therefore widespread across the country. For instance, the non-profit IndyCube provides co-working office space in London, but also in cities like Wakefield, Cardiff, Swansea, Newport and over a dozen towns in Wales. Even in urban areas with very small economies such as Rhyl and Abertillery, it is possible to rent a desk, just as you can in the most up-to-date offices in large cities.

Each city should identify any weaknesses in their office market, and justify whether they should respond to them through their Local Industrial Strategy. In some places, this might be providing more high-quality buildings, and in others, it might just be more co-working and innovative space.

Crawley, for example, has a city centre which lacks large offices of 5,00m2 or more, while the average city has roughly a quarter of its office space in buildings in such large offices. Based on the evidence Centre for Cities laid out in our report on the Economy of the Gatwick Diamond, this suggests Crawley could perhaps justify intervening to supply more office space. Other cities such as Preston, by contrast, may have plenty of large offices – but have a shortage of high-quality buildings or innovations like co-working.

When it comes to interventions, cities should only act when it’s clear there is a market failure and the private sector is not responding to existing demand. Huddersfield and Derby have both supplied small amounts of new office space with features such as co-working, one step at a time so as not to swamp local demand, in response to a shortage of office space in the city centre and a lack of new private sector supply.

This is not to say that “build and the jobs will come” justifications for risky speculative office schemes will work – they won’t, as cities should be intervening in commercial property to respond to demand, rather than trying to create new demand. Improving skills and transport provision will be more important than shiny new skyscrapers in most cities.

But in cities where there is an existing kernel of high-skilled work, making sure this activity has the office space it needs in the city centre is an important step for improving local productivity. As work changes, cities should recognise that their commercial space will need to evolve too.

You can explore city-by-city data on office space with the Centre for Cities’ commercial property dashboard.

Anthony Breach is an economic analyst at the Centre for Cities, on whose blog this post first appeared.

 
 
 
 

Amid housing and climate concerns, Australians find more to love about Tasmania's capital city

A AU$200 million expansion is planned for Hobart's international airport to further connect the city to the world. (Steve Bell/Getty Images)

The city of Hobart, with its population of 250,000 people, sits on the southern coast of Tasmania, Australia’s island state. Compared to the hustle and bustle of Sydney or Melbourne, it’s serene and spacious, with expansive views, striking 19th century architecture, and a world-class food and wine scene. The one-of-a-kind Museum of Old and New Art creates yet another draw for tourists; so does the island’s extraordinary natural beauty.

Over the past decade, Hobart has also become increasingly popular as a permanent destination, too: its population increased by about 10% between 2011 and 2018. 

Formerly Australia’s poorest state, Tasmania has sometimes been the butt of jokes, especially among those who have either never visited, or grown up and left for good. In a recent domestic skirmish, where Queensland was left out of Tasmania’s “travel bubble,” the state’s deputy premier declared: “I don't see any reason why anyone would want to go to Tassie.” 


People outside of Australia may know it only for its unique fauna, including the Tasmanian devil, or via the Australian comedian Hannah Gadsby, whose Netflix series Nanette touches on the challenges of growing up there. (She describes it as “a little island floating off the arse end of mainland Australia,” known for its potato farming and “frighteningly small gene pool.”)

But, as a place to live, Tasmania has become increasingly attractive to Australians and foreigners alike in a way that might have seemed unlikely even a decade ago. In 2015, the state had its first positive quarter of interstate migration in four years; since then, a steady trickle of migrants have made their way to the Apple Isle, as it’s sometimes known, often citing climate change concerns and lower house prices as reasons for the move. Many, particularly in Hobart, are international students. 

Now, with Covid spikes in Victoria and New South Wales, Tasmania – with the 150 mile Bass Strait as its moat – has seldom seemed more appealing. In the past quarter, Tasmania has become Australia’s best-performing state economy for the first time since 2009, with annual growth of about 5%. It ranked first in the country for relative population growth, relative unemployment, equipment investment and retail trade. More than 13,000 people are now members of a “That’s It, I’m Moving to Tassie” Facebook group, for people "considering or dreaming about making the big move to Tasmania”. A planned AU$200 million expansion to its international airport will further connect Hobart to the world.

Even before the pandemic, many Australians had begun what Lisa Denny, a demographer from the University of Tasmania, describes as a “value reset.” Between the bushfires and other extreme weather events, “the cost of insurance, the risks, the interruptions to life, and the devastation that have been attached to it, people have been seeking out safer, more secure, and less expensive places to live,” she says. “For many people, [the pandemic] will reinforce or bring forward decisions to move or change their lifestyle, or change what work they do and how they work.”

Kailey Milroy and her husband had been weighing up a move to Hobart since 2017. In 2018, while they were still living in Milroy’s hometown of Vancouver, Canada, the couple deputised her husband’s parents to travel from New South Wales and view a house for them. They bought it, sight unseen, and let out. Until June, the couple and their two young children had been living in Newcastle, New South Wales, two hours north of Sydney. But when their tenant in Hobart asked to end her lease early, the family decided to take the plunge and relocate. “We really love it,” Milroy says. “We’ve already met some people and our neighbours have been super welcoming.” 

Under normal circumstances, the family might have waited a few more years to move. But the year’s news cycle – first, the aggressive bushfires; next, the isolation from nearby friends and family during lockdown – created new incentives to move. “It just made us realise, all the things we were worried about, with moving to Hobart, we can manage that,’” she says. “And it was somewhere we really wanted to be, so it felt worthwhile to give it a shot.”

With no new data on new arrivals to Tasmania expected for a matter of months, it’s hard to hypothesise accurately about either current or future migration, says Denny. The pandemic will necessarily curtail overseas migration, possibly for years to come, but it’s not clear what effect it will have on interstate migration, particularly if Australian employers embrace remote work with the same enthusiasm as some of their international neighbours. 

Still, for the last few years, around 14,000 people have arrived in Tasmania each year, roughly evenly split between international and interstate migration; of these, about 11% are aged between 25 and 29. Each year, about 12,000 people have also left, however, for a net gain of about 2,000 residents.

The effect on housing over this time has been noticeable. At about $510,000, the median house price in Hobart is a fraction of the median in Sydney ($975,000) or Melbourne ($775,000), but roughly the same as in Brisbane, Adelaine, or Perth. But prices in Hobart are rising and rapidly. Hobart’s median house price has risen more than 50%, from $347,000, in the past five years. (In Brisbane, by contrast, house prices have barely changed; in Perth, they’ve actually dipped). Despite the pandemic, Hobart housing prices continue to rise, with an increase in cost of about 1% in the last quarter and 11% in the last year, exceeding every other state capital.  

Ingrid Boone bought a property in Hobart earlier this year, arriving from Sydney just three hours before lockdown began. For the next six weeks, she says, she took extended leave from her work as a retail merchandiser and renovated the house and garden. “As I was here, even in lockdown, I just fell in love with my house – with the view, with the climate, with the opportunity to garden.” 

Returning to Sydney was a wrench. “This dark cloud came over me – it was a horrible time mentally.” When a job opened up in Tasmania, she lost no time in accepting it and returning. “The word ‘yes’ just came out of my mouth. I couldn’t get back down here quick enough,” she says. “I’ve just been absolutely in heaven.” Though the distance from her two adult daughters, who both live on the mainland, has been a struggle, she’s blissfully happy in her new home. “Every single day, the beauty of the place, it just takes my breath away,” Boone says. “I’ve fallen in love with Hobart, and have not for one single second regretted it.”

Though migrants to Tasmania often mention the lower cost of land as a particular pull, there are other Australian regions that are comparable in price. The clinching factor often comes down to questions of climate and lifestyle. 

For Mike Olsen, an IT worker originally from Queensland, even the mandatory AU$2,800 ($2,000) quarantine fee – and two weeks in a government-appointed facility – didn’t put him off making the leap. “I've been to Tasmania a number of times, I've always been interested in living here,” he said. “And after the first wave of Covid, I chose to quit my job, spend a little time with family up in Queensland, and then come down here.”  

Though he’s currently waiting out his time in a quarantine hotel, Olsen plans to spend around a month exploring Tasmania, with a view to finding work in IT and a block of land to buy, likely a half-hour outside Hobart. He’d been thinking about the move for a number of years, he said: “Mainly because I love nature, and Tasmania is full of nature – amazing hikes, down here.” Lower land prices, compared to much of the rest of Australia, are another draw. “It’s got a lot of things going for it.”

In the past, a lack of jobs has prevented many would-be migrants from moving to Tasmania before retirement. But more awareness around the potential for remote work could tip the balance in the state’s favor. “It might give people the impetus to be able to choose where they live, but we really don't know until we start seeing the numbers,” Denny says. “It’s going to be very interesting to see play out, but I think Tasmania is well positioned to be attractive for people to live in, in a changing world.”

Natasha Frost is a freelance journalist based in New York City.