The 'Flight to Quality' Trap: Is Premium Office Space in Australia Always the Right Move?
The Australian office market is currently characterised by a pronounced "flight to quality." Businesses are increasingly drawn to premium, A-grade office buildings with modern amenities, high sustainability credentials, and prime locations. While the allure of a prestigious address is strong, it's crucial for tenants to critically assess whether a premium office space is a strategic investment or a potential financial trap.
Understanding the 'Flight to Quality'
Several factors drive the flight to quality. Post-pandemic, businesses are using high-end office spaces to attract and retain top talent in a competitive labour market. Furthermore, there is a growing emphasis on employee well-being and corporate social responsibility, making buildings with high NABERS and Green Star ratings particularly attractive. A recent Knight Frank report on the Australian office market confirmed this trend, showing a widening gap in vacancy rates between premium and lower-grade buildings.
The Potential Pitfalls of a Premium Lease
While a premium office can offer significant benefits, tenants need to be aware of the potential downsides:
Higher Total Cost of Occupancy: The base rent is just the beginning. Premium buildings often come with higher outgoings, including management fees, service charges, and utility costs.
Inflexible Lease Terms: Landlords of premium buildings may be less willing to negotiate flexible lease terms, such as break clauses or subleasing rights, due to high demand.
Overpaying for Unnecessary Amenities: While a state-of-the-art gym and end-of-trip facilities are appealing, tenants must ask themselves if these amenities are ones they will use and if they justify the additional cost.
A Checklist for Evaluating a Premium Office Space
Before signing on the dotted line, tenants should conduct a thorough evaluation:
Cost-Benefit Analysis: Go beyond the base rent and calculate the total cost of occupancy over the lease term. Compare this to the quantifiable benefits you expect to gain, such as improved employee productivity or brand image.
Alignment with Your Brand and Culture: Does the building's image align with your company's brand and culture? A formal corporate environment may not be the right fit for a creative start-up.
Future-Proofing: Does the building have the technological infrastructure to support your future growth? Consider factors such as internet speed, mobile phone reception, and the ability to accommodate future technological advancements.
Sustainability Credentials: A high NABERS or Green Star rating can lead to lower energy costs and appeal to environmentally conscious employees and clients. You can check a building's rating on the official NABERS and Green Star websites.
Talk to Existing Tenants: Speak to other tenants in the building to get their perspective on the building management, amenities, and overall experience.
For many businesses, a premium office space can be a powerful asset. However, it's not a one-size-fits-all solution. By carefully weighing the pros and cons and conducting thorough due diligence, tenants can make an informed decision that supports their long-term business objectives.
