Throw me a bone…….!! A post earlier today from Matthew Mackey FRICS (link in comments 👇 ) led me to reflect on the challenges being faced by the flexible workspace sector in Australia.
During and following the pandemic, the hospitality industry experienced acute staffing shortages, prompting a surge in wages to attract and retain talent. This scenario is mirrored in the construction industry, where labour costs have skyrocketed, further inflating the overall expense of developing new flexible workspaces. Utility bills, too, have seen a sharp increase, adding another layer of financial pressure on operators. These escalations in operational costs significantly impact the bottom line, especially when the rates paid by customers have only marginally increased in response.
The current state of construction costs in Australia is very concerning, and a situation that only a severe recession could potentially correct - clearly a scenario we all hope to avoid.
Labour costs, a significant component of overall expenses, are surging across all states. In New South Wales, a proposed 26% pay rise over three years, including an 8% upfront increase, is well above the annual inflation rate, signalling a disconnect with market dynamics. Queensland faces a similar scenario, with recent union deals forecasting substantial pay rises into 2027.
This trajectory poses a question of sustainability. As labour costs are projected to add between 5% and 10% to total construction costs by 2027, we must also consider the potential for future material cost increases, the deepening labour and skill shortage, and the looming capacity crisis.
For operators with established locations, the current economic landscape presents a mixed bag of challenges and opportunities. On one hand, their existing infrastructure may offer a competitive edge. On the other, the escalating operational costs pose a threat to profitability and long-term sustainability. New entrants and those wishing to expand face an even steeper uphill battle, as the compounded cost pressures create a prohibitive barrier to entry, threatening to stifle innovation and limit diversity within the sector.
Running a business is never easy, but this does feel like a very unpleasant combination of factors for operators to grapple with. The flexible workspace sector, celebrated for its dynamism and adaptability, must now leverage these strengths more than ever. It calls for strategic collaboration between industry stakeholders, innovative cost-management strategies, and perhaps a complete rethinking of business models to ensure resilience and sustainability……
#coworking #flexibleworkspace #futureofwork