Small firms to emerge as saviours of COVID-hit CBDs
The COVID-19 pandemic will usher in a “new dawn” for Australia’s struggling central business districts, as falling rents spark an influx of smaller, vibrant firms, according to a new report from consulting firm PwC.
ABS data shows Australians have abandoned the big cities for the regions in record numbers during the pandemic, ostensibly to escape the psychological and financial pressures of the city. Regional property prices have surged.
CBDs were rendered virtual ghost towns during the height of COVID restrictions. By October, occupancy rates in Melbourne CBD office buildings were still running at only 7%, at 40% in Sydney and 61% in Brisbane, according to PwC. Even now, as office workers straggle back, businesses which depend on the commerce of city centres are fighting for survival: hotels, restaurants, cafes and convention centres are prime targets for continuing government support after JobKeeper ends in March.
Crushing rents charged by big commercial landlords look unsustainable in the face of a trend in working from home that appears set to endure.
But PwC chief economist Jeremy Thorpe argued that COVID-19 had not spelled the end of CBDs. He said that city centres would evolve to incorporate a new breed of smaller, dynamic businesses which would take advantage of falling commercial rents to occupy prime office space.
Mr Thorpe said stories about families leaving cities behind en masse for regional living were “overstated”. “I’m an optimist on cities. There will be some movement to the regions, but the benefits of agglomeration are real and will reassert themselves.”
The pandemic has also offered entrepreneur Lisa Qi an unexpected boon: an opportunity to base her start-up in the heart of Sydney.
For Ms Qi, the co-founder of Oscar — a mobile app to find affordable parking in the city — the allure of the CBD remains undimmed. “The ease of getting here, all the businesses nearby — the dining and entertainment — it still is a hub,” Ms Qi said.
She said the plan down the track had always been to move into a more central Sydney location. But tumbling office rents had allowed her expanding team to set up shop in Wynyard.
“We were in a co-working space in Ultimo before the pandemic, which was great but it just wasn’t affordable,” Ms Qi said. “We wanted to be as close to the CBD as possible, but it was more economically viable to locate on the city fringe.”
When the pandemic struck, the Ultimo space closed down and Ms Qi and her employees spent the rest of the year working from home. Four weeks ago they set up shop in Wynyard, and Ms Qi said while she and her staff could work from home, she still saw the benefits of a physical location and face-to-face contact.
“We have hired more staff, and to start building up that team morale and team culture, we need that office space. As much as there was peace and quiet working from home, I think we really missed the camaraderie, that sense of team when you are physically together.”
With so many concentrated in relatively few cities, the central business districts are hives of activity. PwC research reveals that 12% of national economic activity comes from CBDs.
Major city centres including Sydney, Melbourne and Perth employ 3.5 times as many people as the mining and resources sector, the PwC report shows. There were more than 350,000 workers in Sydney’s central suburbs, including the city, Haymarket and The Rocks, in 2018-19, and nearly 260,000 in central Melbourne. Between them, they added close to $140bn to national GDP.
Despite its wide-open spaces, Australia is one of the most urbanised countries in the world. More than 86% of the population resides in urban areas, according to World Bank data, versus 82% of Americans, 84% of Britons and 60% of Chinese.