Sleepwalking into a spiral of urban decay: why we need to get back to the office
Empty stores in our cities are an increasingly common sight. Reserve Bank governor Philip Lowe even referenced the rising levels of empty retail spaces in his major policy speech at the Committee for Economic Development of Australia last week.
On average, more than one in 10 stores now sit vacant in Australian CBDs. It’s especially acute in south-east Queensland, where the retail vacancy rate is now 13 per cent. Sydney and Melbourne have 7.6 per cent and 4.3 per cent respectively, but these numbers have been rising.
The number of empty stores was ticking slowly upwards in recent years, perhaps a reflection of changing shopping habits and a sluggish consumer economy. But the COVID-19 downturn has pushed the vacancy rate to its highest level in decades.
There isn’t much incentive for new businesses to take up the empty space right now. International tourist arrivals remain effectively zero. Interstate travel seems some way off fully returning to previous levels, at least pending a vaccine rollout, and there is likely to be a permanent reduction in business travel.
Government forecasts expect unemployment to rise from here before a jobs recovery kicks in. Large companies are reviewing office space requirements, with many likely to downsize their premises permanently, as flexible work-from-home arrangements become an expectation, not a benefit.
It all adds up to deep uncertainty about activity levels in Australian cities. The best-case scenario is that cities will get busier, but it will be a long time before they regain previous volumes of foot traffic and consumer spending.
This presents complex challenges for companies, workers and governments. Companies and governments, in particular, need vibrant cities to support economic efficiencies, revenue opportunities and investment appeal.
Research by C|T Group on evolving perceptions of the pandemic across five countries since April has captured the ebbs and flows in community anxieties over personal safety and economic risk. The two are closely related: spikes in coronavirus cases trigger increased health worries but also curb economic activity. But the research in September showed a 9-point gap between Australians’ perceptions of it being the “right time to return to the office” (42 per cent agree) and office environments being safe (51 per cent).
The problem for companies is that it’s one thing for people to say it is safe to return to the office, but another to understand the true drivers of their reluctance to be back in that environment.
People enjoying the benefits of working from home may be reluctant to return for a variety of reasons, some of which they may not want to share openly. They may dislike their commute, the office environment, their colleagues, or their boss. Conversely, they may not have sufficient information to be persuaded of the benefits of returning to the office – especially if those arguments are vague appeals to “company spirit” or “being back together”.
Companies need to assess how they make a compelling case to their staff and clients about their plans for managing both this pre-vaccine period and the new era, in which some things will not go back to the way they were.
Our research has found that concern about the overall condition of the economy is a highly motivating factor for Australians. This is probably connected to the reality that people grasp this downturn presents them with personal risks: they may lose their job, be required to accept lower pay, and bonuses or expected pay rises may not materialise.
Workers who have seen the benefits of working from home are going to be hesitant about returning to chaotic workdays bookended by time-consuming commutes. Some proportion of people will naturally be drawn to returning to the social contact and city lifestyle, but this will vary from company to company
The questions for companies are highly complex. What is the right balance between workplace flexibility and business performance in a company given the nature of its work? Do clients expect or need face-to-face meetings, even if they may say remote meetings are OK in a survey? What levels of revenue and productivity are derived from people physically being in a CBD office where issues can be resolved in a one-minute conversation at a desk? What opportunities, particularly in problem solving, creativity and innovation, will be lost as a result of designing out a certain level of in-person collaboration?
Given what we know about concern for the economic environment being a strong motivator for people’s decisions, governments and the broader business community have an important role in prosecuting a clear economic case for ensuring cities return to something approaching their previous vibrancy.
The damage from store closures is felt on three fronts: in the lost front-line retail jobs, in someone’s asset sitting idle, and in cityscapes where a mounting count of empty stores frays the street aesthetic.
Australia’s comparative success in containing COVID-19 should not assume city life will somehow magically reignite. In the rush to reinvent work practices, it would be a disaster to end up sleepwalking into a spiral of urban decay.
Targeted tax incentives and investments in specific precincts can help. For business, leaders and policymakers need to consider carefully how best to energise people behind the recovery. This starts with fully understanding the motivations at play in the workforce, and then mounting a compelling case for how the business and its people can lay a platform for shared success.
This article appeared in The Sydney Morning Herald in November 2020.