Melbourne’s CBD will never return to former ‘glory’

Victorian Premier Daniel Andrews predicts that 40% of workers will never return to Melbourne’s CBD, which has angered business groups and the Opposition:

“I think the days of having 100 per cent of people at their desk 100 per cent of the time, in the CBD and in CBDs in the suburbs or regional cities, I don’t know about that [Premier Andrews said].

“I think that working from home works very well for some people some of the time. We estimate we’re going to finish up with about 60 per cent back.

“I talk to big employers, particularly in the CBD, they’re probably more like the 50 per cent mark”…

The Premier’s comments have been condemned by business groups, who accused him of giving up on a viable back to work plan…

David Southwick, opposition spokesperson for CBD Recovery, called on the government to set better targets to get people back to work.

A new analysis of visitor numbers also suggests that Melbourne’s CBD traffic has gone back nearly two decades:

Fresh analysis by KPMG director of demographics and urban economics Terry Rawnsley shows the number of residents, workers, students and visitors on the streets of central Melbourne are currently at levels below those seen in the mid to early 2000s, and even a relatively successful recovery in the coming months might see the city populated at 2009 levels…

Melbourne’s population in 2009 was 3.85 million, compared to 5.15 million today…

More than one-in-five shops across the City of Melbourne — and two in five in Docklands — are still empty, while CBD office vacancy rates are approaching all-time highs as companies try to offload unused floor space and supply in the market outstrips demand by nearly three-to-one…

Meanwhile, office occupiers in the city are trying to offload 130,000 square metres of unused or unwanted office space on the sublease market…

SGS Economics senior associate Marcia Keegan said the three-day working-from-the-office pattern was a major, and potentially permanent, obstacle to bringing activity back to 2019 levels…

While the pandemic’s costs to CBD businesses have been enormous, these have been offset by economic gains experienced in the suburbs where people live. My anecdotal conversations with local cafes and shops in my area have all shared a similar theme: that business is booming on the back of remote work.

Economic activity hasn’t disappeared because of the pandemic. It has merely spread-out into the suburbs closer to home. This ‘sharing of the wealth’ and decentralisation of economic activity surely is a good thing, as is the elimination of wasteful commutes and the added flexibility provided by work-from-home.

Unconventional Economist
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Comments

  1. “ set better targets to get people back to work.” how dare you set targets for how employers or employees choose to conduct their business let alone conflate “getting back to work” with “coming back to a set workplace”.

    Lobby scumbag….. but it’s going to work, just wait until the state govts start offering financial incentives (to employers) to get staff back into the office full time….. payroll tax cuts anyone….? Hell, why not a tax on employers who fail to ship their peasants in each day?

    • kierans777MEMBER

      “ set better targets to get people back to work.” how dare you set targets for how employers or employees choose to conduct their business let alone conflate “getting back to work” with “coming back to a set workplace”.

      Hear, hear. Isn’t this this the “market” at work?

    • just wait until the state govts start offering financial incentives (to employers) to get staff back into the office full time….. payroll tax cuts anyone….?

      They had better fcuking not.

    • Except that employers don’t want to risk losing staff. Presumably this is what they have told Dan, which is why he’s accepting that the CBD will only return to 60% capacity.

  2. Our office is currently operating at 1 to 2 days a week onsite for the team. We try to pick a day each week when most of us will be available to come onsite at the same time – mainly for social reasons, but in reality it usually a mixed bag. Sometimes a few of us are there, sometimes it one or none. 80% of the time there is hardly anyone there. I cannot see this changing anytime soon. The CEO hasn’t been there for months and isn’t like to return anytime soon, along with his PA.

    • I think a lot of stuff is driven by the the superannuation funds. It makes one realise how little value they add to the economy.

  3. The big employers won’t care as WFH reduces the lease requirements (offset slightly by more expenditure on IT security). But the commercial and office property owners will be screaming. Even at 30% LVR that’s a lot of debt across the CBDs, and if valuations come off then covenants will be triggered. Traditionally that hasn’t ended well, although banks are more likely to refinance this time as long as funding sources remain available. Refinancing into an interest rate rise might be a bit trickier…..

  4. ChristopherMEMBER

    Just had the discussion with the MD this morning, no expectation for myself or my team to return to the office at all. We can come and go as we please.

    • My employer has given up on mandating any sort of partial return to the office. It is come in if and only when you want to indefinitely.

      • Charles MartinMEMBER

        Same here.
        Our customers are also doing this. I can see myself going into the Sydney CBD maybe 5 times this year for face to face customer meetings.

    • My employer has said two days a week. One day we choose and the second day is a “anchor day” which must be a Monday or Friday.
      They claim they came up with this as the best option after “consultation”. The only problem is almost everyone of my co-workers I have spoken to is happy and productive working from home and doesn’t agree with this proposal.

  5. kierans777MEMBER

    Had a mate visit on the weekend who hasn’t been to my place since before COVID as he moved out of Melbourne. Was impressed at my small home office. Quality chair, good monitors. Why would I ever want to get onto a packed train to travel an hour to work in the CBD when I’ve got it good at home – and all my local business benefits as I buy my coffee etc locally.

    The Liberals are once again showing whose pocket they’re in. So much for the “market decides”.

    • Did he perchance comment on the quality of your left-handed mouse*?

      *obligatory JohnR left handed mouse joke. No serious.

  6. Commercial property owners crying themselves to sleep at night, how terrible, I am completely distraught at their plight. Transurban seeing less road traffic and less\ tolls, how terrible. I am completely distraught at their plight.

  7. Wait until the looming recession kicks in, companies won’t be able to divest corporate office space fast enough. The super funds comment ^^ makes sense, in reality it’s CBUS and the CFMEU which would be lobbying hard for this. If skilled people are really hard to find, companies will have to be careful about forcing the agenda here as good people will simply change companies.

    I would if forced, unlikely however considering my company (tech/payments) made all Melbourne staff full time WFH and cut the Sydney floor space in half with 100% hot desk structure. T&E has also been gutted even though the company continues to make really good profit. Most of my clients are the same, all have said that none of their office spaces are the same. Unsure what sort of companies would be mandating a back to office policy? If they did, perhaps its an indication of being the next Kodak.

    • All government departments have been ordered back to the office. Some departments have flexible arrangements some don’t. I imagine there will be a high turnover in the next 6-12 moths as staff realise how good WFH was.

      • Doing consult with staff and the unions on the arrangements such as 3 day office weeks. Federal govt wants people back but they know that it is impossible to expect a pre 2020 deal.

    • You won’t see any rent reductions as that is the top-line figure needed for debt servicing. What you will see is “incentives”. Rent-free periods, large contributions to office renovations, fully funded social gatherings for tenants, that sort of thing. But companies will need to be careful as outside the extroverts or party people, lots of employees prefer the mixed working arrangements.

      • working class hamMEMBER

        Commercial realty is also valued at a square metre rate based on rent charged. Any drop would drastically reduce sale prices. Feedback loop?

        • Absolutely, hastened by DCF revaluations triggering covenants that then affect debt levels. So from the property owner/bank perspective it absolutely cannot happen at the “potential rent” level. All the adjustments will be from the owner’s balance sheet expenditure, which is technically invisible at the asset valuation level. But if you can’t let the deflation occur slowly over time then it does all start to go horribly wrong. And while there is an element of schadenfreude in watching large asset owners get spanked, these problems often spill over elsewhere so its not necessarily the best outcome for CBD properties to be actively revalued immediately on realistic rents.

      • If flexible work arrangements continue then eventually rents should fall, unless we have inflation. The value of the buildings in real terms would be less though. I think many office buildings are owned by superannuation companies so the loss will be spread across the community.

    • Took me 40 minutes to drive 5km to drop my daughter to school.

      And then 10 minutes to get back home again!

  8. WhatcouldgowrongMEMBER

    We’ve all been around long enough to know what the solution is… we need more people!

  9. Just wait until employers start employing people overseas to do the job at a fraction of the cost. If the job can be done from home it can be done from India or other countries with cheaper labour. Then people will be pushing to get back to the office.