COVID-19 has destroyed and transformed the country’s central business districts, but in her street-side gallery, there’s no place Sonja Ari would rather be.
Most important points:
- CBD office occupancy rates remain below pre-pandemic levels in all capitals
- More and more people work from home a few days a week
- Landlords offer more generous terms to secure tenants
“I told my partner, ‘We should go out,'” she says. “We have to be there and we have to make sure people see us.”
Together with artist Adrian Flor, her brand Awen sells locally designed streetwear with Peruvian influences.
In addition to a popular online store, the pair have just opened their first permanent store – in the heart of Melbourne’s busy Flinders Lane.
“Obviously when you see it on you, you want to buy it,” says Ms. Ari.
“Having a store and people who see it and come and chat, mingle – they love us. So we love them too.
“It’s different online. You see it and (think) ‘Yeah, that looks good,’ but maybe you don’t buy it.”
Life has not been easy in the central business districts (CBDs) of our largest cities, almost three years after the outbreak of the COVID-19 pandemic.
Office occupancy rates are still below 2019 levels, overseas tourism is still below its peaks, and the construction and renovation boom has left some areas more scaffolding than storefronts.
But AP Property’s Zelman Ainsworth is bullish on the outlook for CBD retail across the country as he connects landlords with tenants looking for a city.
“Retailers recognize that the CBD is the heart of the state,” he says.
“Everything happens here. And starts here. And grows here.”
It is not new that a broker thinks that now is a good time to invest.
What has changed is the mix of businesses looking for space – often brands like Awen, coming to town for the first time – what Mr Ainsworth describes as a “reset” of leases.
“That has created opportunities for smaller companies,” he says.
“So you see a lot of creative, interesting, entrepreneurial companies doing a number of different things that weren’t available to them before.”
Rents aren’t really falling, but the deals on offer are different.
Instead of a standard 5-7 year lease, landlords are now open to 2-3 year leases, reducing risk for companies investing in a city store. Essentially, they are more flexible.
“It gives landlords the ability to ensure their tenants are there for the long haul,” says Mr Ainsworth.
“But at the same time, you see real estate prices being sold at the same values and even better values, so we don’t see much of a drop in retail rents in the city.”
The picture becomes more complex when you understand that working from home (WFH) is not a trend that will disappear.
Instead, the data is cemented: work-from-home days are now a regular part of the week for a typical office worker.
Even cities like Brisbane, Adelaide and Perth – largely spared the worst impacts of pandemic lockdowns and work-from-home mandates – have seen office occupancy declines from 2019 levels.
“We think 80 per cent office occupancy is a clear win for Perth and take into account that people work a little differently these days,” said Sandra Brewer, executive director of the Western Australian chapter of the Property Council of Australia.
“If the past two years have taught us anything, it is that flexible working has become indispensable.”
Property Council data from November suggests that offices in Melbourne’s and Sydney’s CBDs are at 39 percent and 41 percent respectively on a low day of the occupancy rates they enjoyed before the pandemic began.
Occupancy rates during peak days (Melbourne 75 percent, Sydney 74 percent) are better, but city centers are still emptier.
Ms. Brewer says it needs work, but CBDs are already shifting to a more diverse mix of offices, retail and residential buildings.
“Cities are always evolving. And this is just another change in culture and our society that cities need to respond to,” she argues.
One component is an increase in sustainable buildings and innovative ‘premium offices’ to attract and retain staff.
“It will be a better, more luxurious office space,” she says.
“Those old buildings are going to have to make decisions, whether they should move or maybe they should start over.”
You would think it’s a pretty simple equation.
Fewer people in the office, more days spent at home means smaller, cheaper offices.
But the opposite happens.
“We see people taking up a little more space and the most important thing is that they move to a better office,” said Sameer Chopra, head of Pacific Research at commercial real estate giant CBRE.
Rent is only about 2-5 percent of cost for most companies with offices in the CBD, while salaries and wages make up about 40 percent.
“So to keep their people happy, they like to make this tradeoff,” Chopra explains.
“They’re trying to get closer to the customers and give the customers – and also their staff – a good experience. That’s been a big driver.”
Now that occupancy rates have dropped across the country, those more luxurious office spaces are changing. They are no longer just “Zoom rooms” for video conferencing, but wider renovations.
“What we’re discovering now is that there’s a real demand for and premium conference rooms for face-to-face meetings… we’re seeing major technology upgrades, better Wi-Fi systems, better audiovisuals, better kitchens.”
Heart of the city
Patterns of urban life have changed since the start of the pandemic nearly three years ago. Previously, Friday was the busiest day for traffic – feet, cars and public transport – in the city.
Indicators are now Thursday, with strong numbers for weekend shoppers.
And people who haven’t been for a while can expect new things in addition to the devastation COVID-19 has wreaked in many areas.
“All major retailers want stores in all major cities, and Sydney and Melbourne are at the top of that list,” says Ainsworth.
The reason isn’t just branding, he adds, but performance in selling stock.
“And now we see Adelaide, Brisbane and Perth being recognized by global retailers as cities they want you to explore and invest in as well.”
Ms. Ari has helped tile, paint and clad her shop and wants to stay in town for the long haul.
“If you’re passionate about doing it, do it,” she says.
“Because we need more people like us to open stores like this and bring the city back to life.”