The great suburban shift: what might it mean for property values
- Written by Scott Willson, CEO of Forbury
Taken a wander through one of Australia’s capital city CBDs in the last couple of months? Although business as usual continues to resume erratically, it’s impossible not to notice that they’re not the bustling frenetic places they were in the pre-COVID era.
Many organisations are persisting with work from home and hybrid working models, which means fewer bodies in offices, streets and coffee shops each day.
Some companies which, once upon a time, would have sought to base themselves at the heart of the action, in corporate central, are now hunkering down in low rise buildings and co-working spaces, in less prestigious, near city precincts and the suburbs proper.
Among their number are new and expanding businesses which, pre-COVID, would have regarded a move into the city as a key milestone on their growth journeys.
If and when they’ll ever take that step is now anyone’s guess.
The Christchurch experience
As a long-time observer of the property sector in Australia and New Zealand, I’d posit that it will be quite a while. Why do I think so?
In my home city of Christchurch, we experienced a similar phenomenon 10 years ago, when the 2011 earthquake caused massive devastation to the central city and eastern suburbs. Around 70 per cent of CBD buildings were compromised or destroyed, along with critical infrastructure, including roads, bridges, powerlines and sewerage systems.
City-based businesses were forced to find ‘long-term temporary’ perches in the burbs, while our city heart was razed and rebuilt. Many organisations swapped tenancies in modern, high rise towers for decidedly less swanky two and three storey walk-ups a few kilometres out, or cobbled together home-based working arrangements. With office space of any description at a premium, beggars were unable to be choosers and, thus, many organisations found themselves occupying real estate that wouldn’t have made their shortlist before 22 February, 2011.
Surprise, surprise, many found they liked the lower key vibe of the middle ring and outer suburbs. Consequently, they were in no rush to return to the CBD’s rebuilt office accommodation when the time came, which meant owners and landlords were compelled to offer favourable terms to boost occupancy rates.
Weighing the options post-Covid
I think we’ll see similar attitudes and behaviours from Australian businesses and business owners in the wake of the COVID crisis, as they assess their positions and bed down hybrid working models.
We’ve all learnt from experience that location is all but irrelevant in the Zoom era. So, if employees are happy to swap a long commute to the city for a drive to the burbs (and free or cheap parking when they get there) a couple of times a week, employers will likely be happy to accommodate them.
Reluctance to lock into the long leases regarded as de rigueur by CBD landlords pre-COVID may deter some businesses from basing themselves in town too. At Forbury, we’ve heard of a number of enterprises which intend to stay fetched up in co-working spaces while they wait to see which way the rest of the business world jumps.
Adjusting to the new normal
What might all this mean for the owners of office real estate? Those with CBD space to let could find themselves forced to sharpen their pencils and sweeten their terms, if they’re to maintain occupancy levels on par with those they achieved in the 2010s. Remodelling and repurposing may make its way onto the agenda, as it has elsewhere in the world, although the challenges and costs associated with doing so are not to be underestimated.
Conversely, suburban offices, shops and cafes may enjoy some uplift, in value and earnings, if the influx of weekday activity continues long term.
One thing remains certain: the only constant in life is change. It’s my prediction we’ll be seeing plenty of it over the next 24 months, as Aussie and Kiwi companies do some hard thinking about where they want to be based.