Could Return-to-Office Drive Productivity in Melbourne?

The debate on hybrid working models and recent return-to-office mandates remains divisive among employers and employees. As vacancy rates approach 20% in Melbourne's CBD, major corporates are pushing for increased attendance. This trend is likely to boost demand for office space, with early signs of recovery already emerging.

Major tenants in the finance, insurance, and retail trade industries have recently revised their hybrid-working policies to mandate staff in-office, ranging from 50% of the time to a full five days. One announcement cautioned staff that annual salary reviews and bonuses might be affected if they don’t adhere to the attendance policy. Consequently, the Melbourne office space requirements for both companies have grown.

Recent JLL research in the United States suggests that Fortune 100 employers mandating office attendance for three or more days have experienced greater equity growth compared to remote-friendly companies, with an 8% difference over the past year. This data is significantly influenced by the outperformance of US tech giants, which have increased their in-office mandates, requiring employee presence for more than three days a week. In Australia, listed technology companies within the ASX 100 have also outperformed, despite predominantly maintaining remote-friendly policies.

An Australian analysis of the ASX 100 examined whether there was an equity difference between companies whose policies favoured spending 50% of time in the office compared to those not requiring a minimum of 2.5 days in-person. The outperformance of the remote-friendly information technology sector balanced the annual average equity growth between the two groups, resulting in no difference. However, excluding information technology companies, those requiring staff to be in the office at least 50% of the time experienced 2.7% higher equity growth over the last year.

While the complex economic factors affecting equity prices prevent drawing a direct correlation between return-to-office mandates and performance, it's evident that CEOs are increasingly considering the impact on productivity and collaboration.

A large gaming corporation recently updated its policy to mandate full-time in-office attendance, representing a significant shift from the former CEO’s support for hybrid working arrangements. This updated policy follows a 50% drop in their stock price since the beginning of the year, with the recently appointed CEO citing company performance and culture as key reasons for the mandate.

An investigation of hybrid working policies among Melbourne's CBD's top 100 office space occupiers reveals that working from home remains prevalent, with 40% of businesses having policies that don't meet the 2.5 days in-office threshold. Our research shows that only 3% of Melbourne's largest 100 office occupiers have public policies expecting full-time office attendance. This compares to 19% of Fortune 100 companies in the US as of Q3 2024, a figure that has grown from 2% in Q1 2022 and 3% in Q1 2023.

Figure 1: Hybrid working policies amongst Melbourne CBD’s top 100 occupiers of office space

Source: JLL Research, 4Q24

While employers' approaches to hybrid working policies are likely to remain mixed in the near term, we expect trends to align with those in the US. This shift is likely to increase demand for office space as companies mandate more days in the office each week.

Figure 2: Equity price change by office attendance policy – ASX Top 100 by Market Capitalisation*

Source: JLL Research, 4Q24