What is the purpose of CBDs now - and into the future?
About a month ago, while walking through my city centre on a Sunday morning, I received a surprise - the people around were virtually all tourists. While the Chinese groups stood out, even the Anglo-Saxon tourists were clearly not from my city, something I could tell from clothing and behaviour. I don’t visit the CBD much; I work in a different location, and my lifestyle means I don’t go out often. To my memory, I knew that Friday and Saturday nights were generally busy, at least in the warmer months. But seeing the CBD like that made me think quite a lot.
My initial thought was that maybe the rising cost of living was having an impact. Then I realised that I’ve lived here for 15 years, and for most of that time, the CBD didn’t appeal to me strongly enough to pay the going rate for rents there. So maybe my own behaviour is in fact typical; maybe CBDs around the world are not actually a destination for people anymore.)?
CBD locations used to command a premium because they allowed the exchange of ideas 💡 on a large scale. Socially, it meant that people from different industries and backgrounds came into regular contact with one another. And many CBDs used to host manufacturing as well, although that’s now moving beyond living memory in many places. It begs the question - has digital technology and working from home broken the historical reason for actual cities (or at least the idea of a CBD)?
The Australian capital, Canberra, could be a good place to watch as a bellwether for how cities will evolve over time. As a government city, it has office workers in large numbers. Canberra now has the lowest office occupancy percentage in Australia on average across the working week, as well as by far the largest percentage range between its highest occupancy day and its lowest - https://www.afr.com/property/commercial/canberra-shows-the-changing-world-for-office-workers-20220907-p5bg3s. Many Australians would joke that Canberrans don’t visit the CBD because there’s nothing to do there. But clearly, Canberrans have taken to flexible working like ducks to water. In a tight labour market, this type of flexibility appears to be becoming something that employees value highly.
So why else would people choose to visit CBDs? One reason could be retail. But in many cities, office jobs were among the highest paid roles, which created opportunities for services and retail catering to these workers. Now that they are not there in such numbers, what used to be solid businesses are now marginal. With the loss of high value customers, and the rise of online shopping, is there enough of a draw to leave the suburbs (especially given the noise, crowds and crime that have always been a feature of cities)? In many cases, I suspect that the answer is no, and that high-value retail will follow their customer base elsewhere.
There’s a further issue in some places – mass tourism. In a city like Amsterdam that is suffering from over tourism (https://www.theguardian.com/world/2023/sep/10/tiktok-food-tourists-leave-a-bitter-taste-in-amsterdam), I wonder how the locals would respond if tourists were to ask them “Where are the best places to eat”? In many cases, I suspect that they may refer them either to places far, far away from their workplace or residence. As someone who has worked in mass tourism, this is entirely understandable. If you spend all week dealing with huge crowds of (often) clueless, ignorant, loud and selfish tourists, the last thing you want to do in your spare time is to have to deal with them again. What you DO want is to have part of the city that is quieter and calmer, where you can speak as you wish, and simply relax with others who share your manners, etiquette and culture.
Over time, I suspect, if over tourism gets too bad, then businesses and their employees relocate elsewhere. The irony is, many of the tourists won’t notice the change, in large part because they are focused upon the perfect photo for social media. But the city council, and residents, definitely will. Along with skyrocketing property prices, if support services (among them dry cleaning, hairdressers, florists, legal firms, banks) vanish from city centres, then it won’t take long before many of the residents go with them.
This, of course, has flow-on effects. In the short term, it may mean that staff have to commute further to work because they can no longer afford to live nearby. There may be less taxes for the local government to fund municipal services with, as San Francisco is discovering - https://www.afr.com/property/commercial/move-over-san-francisco-the-suburbs-of-silicon-valley-are-calling-20230831-p5e12o.
Many cities are trying to convert office towers into residential property. But the success of this approach depends upon who’s moving in, and why. By way of example, Melbourne is very proud of becoming a leading city for international students (https://melbourne.org.au/news/melbourne-a-prosperous-future-world-leading-international-student-city/). But it’s also becoming famous for building tiny, badly designed apartments to house them (https://www.afr.com/property/melbourne-cbd-apartments-tiny-and-expensive-20160605-gpc44y). Meanwhile, property prices have recovered all of their COVID-era losses – and then some: https://www.abc.net.au/news/2023-11-01/october-home-values/103043124 .
At the same time, both interest rates and rents are rising, and so is immigration (https://www.afr.com/policy/economy/record-immigration-nowhere-to-live-welcome-to-australia-s-rent-crisis-20230331-p5cwzb). So in most cases, it’s not first home buyers choosing these CBD apartments; broadly speaking, they’re both unaffordable, and not in demand: https://www.realestate.com.au/insights/who-are-modern-first-home-buyers-in-australia/.
All of which means that there are three groups buying into CBD housing markets. Firstly, there are some immigrants well off enough to buy, although it does take some time for them to decide where they wish to purchase. Secondly, there are some adult downsizers who swap the maintenance and work of a suburban house for the convenience of apartment living. These groups buy at the higher end of the market. As for the rest? Well, we have investors, often corporations, buying up CBD properties to rent out to student. More often, though, they are converting rental properties to allow for short-term stays with groups like Airbnb, an increasingly controversial approach (https://www.theguardian.com/commentisfree/2023/sep/27/new-york-airbnb-renters-cities-law-ban-properties).
So how do all of these trends play out over the next decade and beyond? I suspect that in 20 years, many of the current retirees moving into CBDs are going to need aged care and related services, and in Australia at least, I don’t see property developers taking such needs into account. Secondly, foreign students will keep coming, but with birth rates dropping in many nations (https://www.visualcapitalist.com/cp/charted-rapid-decline-of-global-birth-rates/), they may not arrive in enough numbers to fall all of those apartments.
If many of the jobs (and the wealth they generate) leave the world’s CBDs, does adding more apartments help these areas to recover if the people renting them don’t have much disposable income? Or will we see something like a reverse gentrification going on- will students end up living in the city, and commuting out to jobs in the suburbs?
The outcomes will vary, and some cities will make the transition much better than others.
What do you think?
