Is remote work the death of corporate offices in CBDs?

Is remote work the death of corporate offices in CBDs? | Insurance Business Australia

Is remote work the death of corporate offices in CBDs?

If you’ve ever thought about filming a zombie movie, you still have plenty of time. Ongoing lockdowns in Sydney and Melbourne have left CBDs quiet. Many corporate offices in landmark skyscrapers are empty.

Working from home has filled the void. So even after the pandemic, how many corporate clients are likely to return to these famous office towers in our CBDs?

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Are companies looking to reduce their office space footprints and therefore cut back on commercial insurance coverage? What are the implications for brokers?

A quick phone call to the real estate managers of some of Sydney and Melbourne’s famous commercial office buildings confirms that, ‘yes’ the buildings are virtually empty because of lockdown, but ‘no’, there isn’t any sign that clients are moving out and vacating their leases.

According to Dexus, a real estate investment trust that manages landmark Sydney office blocks like 25 Martin Place and Australia Square, occupancy levels are very high and rents are being paid.

2021 annual results reported Dexus profits up by 17%, rent collections across the portfolio at 98% and office space occupancy at 95%.

In fact, according to a recent Dexus survey, 20% of its clients need more office space and nearly 80% want to work in the office three days or more a week.

Another commercial property group reported similar trends. This suggests the commercial insurance sector isn’t suffering as much as you might think.

“It hasn’t been impacted. No, not at all,” said Elantis Premium Funding’s CEO Nick Cunningham (pictured above).

“When you think about it, most people are generally on a five-year plus lease so people can’t really make much of a change at the moment,” he said.

Cunningham is optimistic that once the pandemic is over, office workers will go back to work in the CBD, at least for some of the week.

“I’m looking at some of the big multinationals and some of the big banks and they’re still building, for example NAB is moving to a new location in Sydney. So none of that’s stopped and I’m certainly hearing from other leaders of businesses and from employees that they don’t want to go to a situation where there is no office to go to.”

According to a recent discussion paper by the property group, Mirvac, the future of the office is secure. Mirvac has coined the term “omni-channel working”.

“The scene is now set for an omni-channel approach to working in which employees work, synchronously and asynchronously, across time, space and a range of places. The corporate office channel will remain critically important,” said the discussion paper.

However, some insurance industry professionals say the pandemic has impacted their commercial insurance business, especially payments from SMEs and medium size businesses.

 “Yes, I think what we saw, certainly in 2020, in the early to mid-stages of the pandemic, a number of businesses that were struggling financially actually downsized or removed part of the insurance coverage that they had,” said Arteva Funding CEO Daniel Gronert (pictured immediately above).

Arteva describes itself as Australia’s largest independent player in the insurance premium funding sector.

“We spoke to many brokers who were replacing cover, or downsizing policy coverage for businesses that may have had an estimated turnover of $20 million that were maybe on track for half of that so they could then reduce their insurance coverage, which then resulted in a lesser amount payable for their insurance premiums,” he said.

Arteva saw brokers reducing premiums on renewal or refunding them part way through the policy term.  However, in 2021, Gronert said he’s seeing less commercial insurance issues.

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“But that probably in some way comes down to the timing of government stimulus. I think ultimately when we look back now that stimulus was on the money. They did a very good job of avoiding what could have been a far more long-lasting impact on a number of sectors of the economy, particularly SMEs,” said Gronert.