Hybrid work policies may rise in Australia as employers seek to appease demands to work from home.

The tension between the employee’s desire to work from home and the interests of both their employers and the broader property market to get them back into the office, is rapidly coming to a head.

In Australia, office vacancy rates hit their highest peak since the 1990s, with a national central business district vacancy rate of 12.8% — up from 12.6%. Combined with rising interest rates, some are calling this an “existential crisis” for the sector.

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Why this matters from an economic perspective

The long and short of this is that landlords owning the office space are a major asset market, and should it collapse, it will take a good chunk of the economy with it.

For years, commercial office space has been seen as a good investment. Debt was cheap and interest rates were low, meaning that investing in commercial property was a faster and more profitable way of earning money than cash in the bank.

But, that is changing. Interest rates have risen significantly and quickly — from 0.10% in April 2022 to 4.10% currently. In addition, there’s a lower yield on these investments because organizations are rapidly downsizing or foregoing office space altogether. As a result, vacancy rates keep creeping up.

At some point, real estate owners will be unable to afford to maintain their properties and unable to find cheap enough financing to sustain their ownership. This is, essentially, the underlying issue that led to the last Global Financial Crisis. However, this time the trends are affecting office landlords and owners.

That’s not to say there will be a repeat performance of that in Australia; however, it remains one of the many economic concerns that’s contributing to the sluggish economy.

Why employers want their employees back in the office

Meanwhile, Australian employers are increasingly critical of employees — particularly younger ones — for being “selfish” and refusing to return to work in an office. As one executive argued in a feature on HRM Australia, younger employees miss out on the opportunity to develop “key leadership skills,” which “cannot be learned over Zoom.”

Speaking of Zoom, the company itself is one of those mandating that employees return to the office, despite Zoom’s success due to the rapid increase in work from home.

In Australia, 90% of employers have gone as far as to implement mandatory in-office days. For now, only 19% mandate the full working week from an office, but a further 54% are creeping toward that, with three- and four-day mandatory working weeks.

The underlying reasons why employers are so keen to have their employees return to the office vary, but five of the most common ones are:

• Productivity: Some employers believe that working from home reduces productivity and collaboration and that face-to-face interactions are essential for creativity and innovation.
• Culture: Some employers want to maintain or restore the organizational culture and values they think are eroded by remote work and to foster a sense of belonging and loyalty among employees.
• Control: Some employers prefer to have more oversight and supervision of their employees’ work activities, schedules and performance to ensure compliance with policies and procedures.
• Legal: Some employers may face legal issues or risks if they allow employees to work from home, such as occupational health and safety, privacy, data security, taxation, insurance and liability.
• Business: Some employers may have specific business needs or requirements that cannot be met by remote work, such as customer service, quality assurance, equipment or infrastructure.

How are employees responding to these demands?

They’re quitting.

One in three employers has had an employee quit because of a change in policy away from work from home.

At a time where there is a severe skill shortage, this isn’t a position employers want to be in.

Unions, meanwhile, are fighting hard for remote work rights. In July, one of Australia’s four major banks, National Australia Bank, negotiated a union deal that allowed all employees to request work from home, with limits to the reasons it can refuse. The public sector union has also won the right for employees in that sector to request an unlimited number of working from home days.

Almost 70% of Australians who have been working from home would like to continue to do so. This is unsurprising, given that remote working affords several personal and professional benefits, including:

• More independence and flexibility: Employees can choose when, where and how they work, as long as they meet their deadlines and goals and can adjust their work environment to suit their preferences and needs.
• No commute to work: Employees can save time, money and stress that would otherwise be spent on traveling to and from the office, and they can reduce their environmental impact by avoiding driving or using public transport.
• Increased productivity and performance: Working from home gives employees more control over their workload and pace, as they can focus better on tasks and avoid distractions, interruptions and office politics that might affect work quality and morale.

So, who’s going to win?

Some kind of hybrid work arrangement holding pattern will exist for some time to come. Employers will require some time spent in the office, and the amount will depend on what they can get away with before too many of their best employees threaten to quit.

Meanwhile, employees will run out of options for places that allow total work-from-home conditions and seek out some level of flexibility in the amount of office time they’ll accommodate for the right job.

It does seem like “working from home” will be an indefinite perk that some employers will use to stand out in job descriptions, however. Given that a little over one-third of jobs can be performed entirely at home, this perk would seem to be a relatively straightforward and painless one for employers to continue to offer, even if it does result in smaller office spaces and pressure in the commercial real estate market.