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It’s a cold windy Melbourne winter day when four gold shovels are stuck into the ground at Essendon.
Around the small group of people gathered at the site are acres of greenfield land—land that has not been developed in western recorded history—but also warehouses.
Overhead, the occasional aircraft can be seen, in the distance the city of Melbourne, a few feet away a stalled digger in the midst of a muddy trench.
This is Essendon Fields, part of a mammoth $500-million 20-year masterplan for developing some of the last largest tracts of greenfield closest not just to Melbourne’s CBD but also its international airport at Tullamarine to the immediate northwest, and major highways.
Essendon Fields chief executive Brendan Pihan gestures to part of the site green with grass after the rainy weather.
“That’s where we will be extending the road,” Pihan says.
He means Global Avenue, a road that snakes through several warehouses, hangars and office spaces.
Linfox, one of the two groups that has ownership of Essendon Airport Pty Ltd that oversees the masterplan has a warehouse space right next door to the site where Modscape’s new headquarters for a manufacturing robot from Sweden will soon be located.
But there is more planned than just warehouses and a road extension with services such as childcare facilities, public space, food and beverage options and other potential uses considered.
“There will be a couple of thousand people that will work out in this area so providing that amenity early is really important from a placemaking perspective,” Pihan says.
“There’s a whole range of uses that we will have later.”
All of that makes sense: There are 1 million people within a 15-minute drive of Essendon Fields and the airport, and 2.6 million living within 30 minutes.
Services close to or within the precinct in which they work will make it more attractive to work there—life becomes easier and the companies they work for will find it easier to retain their staff.
This amenity and staff-retention narrative is at the forefront of the minds of developers in office, industrial and warehousing sectors.
Getting staff back into the office is a key priority for office tenants and asset owners.
But according to Cushman and Wakefield in their report on Asia-Pacific’s office stock, only 28 per cent of it is prime grade and sustainably accredited.
Almost three-quarters of Asia-Pacific’s office stock is unable to attract or retain top corporate tenants and could risk obsolescence if it isn’t upgraded or refurbished.
Meanwhile, those in the know have noticed how capital investment has moved out of the office sector and more into the industrial sector over the past two years.
Local government in Australia is concerned about this too with the City of Melbourne encouraging developers and owners to consider retrofitting, refurbishing and renovating existing office stock in the CBD to achieve net zero.
Key ratings tools are also changing classifications to keep up with more sustainable practices.
“Repositioning scenarios can range from obtaining the certifications needed to meet minimum environmental standards through to extensive refurbishment,” says Cushman and Wakefield’s international research head for the Asia-Pacific, Dr Dominic Brown.
“In all cases, staying ahead of, or at least keeping pace with, occupier demand and sustainability legislation in each market is necessary for an asset to remain relevant.”
And while a building’s ESG value is one approach to luring workers back to the office, it is not the only card that developers, owners and businesses have up their sleeves.
“Is it a great place to be?”
Hamilton Group director Andrew Hamilton thinks that question is important in trying to retain workers and create a high-quality asset.
“Do people want to be there and are people coming in because there’s a nice shower?
“Or are people coming in because it’s designed for social interaction and they feel like they have a real experience?”
Many kilometres from Essendon Fields, the Hamilton Group is asking the same kind of questions Pihan is, but about a different project: Pivot City.
Pivot City is an adaptive reuse project, taking an old millhouse, power station and other buildings and turning them into a 30ha office and industrial precinct in the buffer zone between Corio Quay and the Spirit of Tasmania terminal and part of North Geelong’s residential zone.
Federal Mills and the Glass House are completed and plans for the Power Station B phase of the project have been submitted.
Like Essendon Fields, the plans for Pivot City have been in the works and the goal is to design and create a space that workers want to work in, where tenants feel they can grow.
“Long term it will become a destination attracted to that energy,” Hamilton says.
“And people love working there because they get to know the person at the cafe and speak to the other people on site.
“They used to make the army uniforms on site and the dye was made in large pots and boiled at a certain temperature.
“We now have got these huge massive trees growing out of those pots and we have people walking around and seeing them and telling others that story.”
The location of each project is also a key factor—both are close to key pieces of transport infrastructure, something their corporate tenants highly value.
And again, like Essendon Airport, Pivot City is near a lot of residents—the City of Greater Geelong is expanding outwards rapidly as it grows and many corporate tenants are keen to have offices not in the CBD but closer to where their employees live and work.
Hamilton says people like to be in authentic spaces.
“My understanding is that the more digital our lives become the more authenticity and tactility we want in a space,” he says.
Some tenants are even questioning the need for a Melbourne CBD-based office if there is space available in Geelong.
“One tenant in 2018, they opened a Geelong headquarters alongside a Melbourne office in Docklands at the same time,” Hamilton says.
“They didn’t account for the fact that a lot of their employees were in the western suburbs and decided to go to Geelong instead of driving to the Melbourne CBD.”
“So their Melbourne office sat mostly empty.”
Empty offices are not just an Australian concern.
For much of the United States’ market, 85 per cent of office buildings are at risk of obsolescence due to a combination of low office return rates, densification and an oversupply with a predicted figure of 1.1 billion square feet of excess office space by 2030.
Sustainability legislation that requires minimum standards to be met prior to leasing and more hybrid and remote work has meant that Europe has 76 per cent of its office stock that needs to be refurbished or repositioned.
Cushman and Wakefield’s Asia Pacific and Europe head of investor services, James Young, says that job creation might be part of the solution but the flight to quality endures in the office sector.
“The risk of office obsolescence, or at least the need to reposition assets, is rising across the world,” Young says.
“Asia-Pacific is currently benefiting from stronger office job creation and GDP forecasts than other regions, but all indicators show a clear and growing occupier preference for higher quality, better amenity stock.”
Cushman & Wakefield’s Brown agrees.
“Asia-Pacific’s growth drivers include the creation of almost 15 million new office jobs by 2030, a higher return-to-office rate than other parts of the world, potential de-densification of workspaces and younger office business districts,” Brown says.
“These factors will provide a buffer against some of the more severe headwinds felt in other regions.”
Developers are hedging their bets on the rise of mixed-use precincts in the office sector.
“It’s about retention of employees, whereas 20 or 30 years ago, it was about management having an effective space,” Hamilton says.
“So having places where people want to come in to work, I think is huge.
“You can make all the policies you want but people will be resistant if they do not want to come in.”
As Brown puts it, landlords will have to change their thinking.
“The key challenge for landlords within the prime market is how to differentiate their assets from the competition given elevated levels of vacancy in some cities,” Brown says.
Across the greenfield land in Essendon Fields’ Hart Precinct, there’s about 30ha to develop.
“There’s about 70ha across the airport,” Pihan says.
Part of that will also involve adaptive reuse of older buildings as the masterplan unfolds over several years and needs and uses change.
“As we go through, while we are developing the new sites, we will also be doing some of those redevelopments, particularly with adaptive reuse for heritage buildings.”
One of those redevelopments is helping to save lives with Ambulance Victoria soon to move into a former airport building.
Hamilton says finding underutilised sites and breathing new life into them was key.
“When [the Power Station B] was set up [in 1954], it was the largest industrial operation and one of the largest employers in Geelong,” Hamilton says.
“So now we believe we have reinvented it as an employment hub again instead of just letting it become a ruin.
“It’s giving you a new story rather than saying it is all too hard.”
And with that decision to look at what can be done, might come the answer to the office sector’s woes around workers and tenancies.
“You can have all the KPIs you want but it’s like, people need to like being there and that creates a good energy and you have got to build that up,” Hamilton says.
“And it’s a dialogue between you and the tenants.”
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