Will COVID-19 be the demise of CBD commercial?

Discussion in 'Property Market Economics' started by albanga, 28th Mar, 2020.

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  1. albanga

    albanga Well-Known Member

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    What’s people’s thoughts on CV19 being the start of the demise of a lot of CBD commercial property?

    Few reasons I see this happening:
    1 - The countless retail that will fail is going to result in a lot of empty commercial property in the CBD and surrounds. With the continued shift to online retail, why would any upcoming retail business want to pay and kind of premium for a CBD location?

    2 - The forced shift to remote working is already and will continued to be realized. Businesses are being forced to see how they can operate remotely and countless businesses are going to see their is simply no need to pay a premium to occupy a CBD space. This is especially the case for backoffice functions that don’t require any front facing.

    3 - As a result of point 2 watch how many businesses with front facing operations look to reduce floor space. And with the significant number of businesses that will go under, their will be an abundance of options all for a very likely low cost.

    4 - As a result of 1-3 I personally see CBD construction being dead for a VERY long time.

    What do others think?
     
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  2. MTR

    MTR Material Girl Premium Member

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    And bankrupy
     
  3. TMNT

    TMNT Well-Known Member

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    i think rents will fall but it seems there is always someone wanting to rent in the CBD, whether it be large business or the corner store type setup,
     
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  4. Scott No Mates

    Scott No Mates Well-Known Member

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    Although I have raised some of these elsewhere on PC
    1. Many retailers have a CBD flagship store, it doesn't make money, it promotes the brand, often a requirement of holding the license.
    2. WFH has been a 'thing's for many years, the current state of affairs will make lasting changes to the way that many people can work. Where control does not need to be exercised by direct supervision, tasks are system-generated and progress is also logged in the systems.
    3. The sub-leasing market will thrive for many years to come. Many firms overcommit to space to enable them to have sufficient CBD office space in the one development, then actively sub-let space to other smaller users. The other market which is growing is the serviced office and collaborative workspaces. This is a sector which will continue to grow.
    4. Yeah but Nah. :rolleyes:
     
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  5. lynchy

    lynchy Well-Known Member

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    Being in the development industry

    1. I think companies will see that they can run efficiently with a fair bit of the work force working from home. Many will reduce their floor space and the leasing market will cop a hit with rents reducing and incentives increasing from a big increase in available floor space

    2. The WeWorks and Regus’ of the world will likely go under as companies go down the hot desking route themselves

    3. We’ve already dropped our exit cap rates for perspective commercial dev sites in our feasibilities. We’ve dropped fringe from 4.75-5.25% to 6% (Alexandria, Pyrmont etc) and new premium grade CBD opportunities from 4.25-4.5% to 5%+

    We’re stil very keen to pick up a couple of premium grade office tower development sites that can deliver 2,000+ Sqm floor plates. With the increasing focus on healthy work places, such floor space will always be in demand from tenants with a continual lack of supply. It’s incredibly difficult to deliver 2,000+ Sqm floor plates in the CBD given it’s like you’ll need to amalgamate multiple sites and strata buildings
     
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  6. Chabs

    Chabs Well-Known Member

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    At best you’ll have an increased ratio of days per period worked from home. I.e. average office worker working more days per year from home.

    Offices are still preferred by most companies that have tried the “full work from home”.
     
  7. Omnidragon

    Omnidragon Well-Known Member

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    My family has been doing business in the CBD for over 35 years. And we own several properties there.

    I suppose it depends which CBD you’re talking about. Melbourne CBD will only ever be stronger because all the jobs and infrastructure is built around there. As my father says, 80% of Victoria’s spending revolves around the CBD be it Melbourne University, RMIT, Royal Melb Hospital, Victoria University etc. The amount of flow a business can do in the Melbourne CBD can’t be eclipsed. We had a tenant whose restaurant at his peak pumped $300k revenue per week. I doubt any suburban restaurant does this sort of business in Australia, except maybe a handful in Sydney. Most restaurants do $100k per week of business + in CBD.

    The tourists and overseas student won’t stop, the working population is half a million, the residents is 100,000, the moving population is around 1,000,000.

    Of course looking st Syd, which has been completely mishandled by Clover Moore and various state government Premiers with curfews and the lot, the CBD is dead at night so people have lost half their business opportunity. Other cities barely attract much people from other countries and don’t have any meaningful scale to pump flow through its CBD (bar maybe Brisbane).

    Lastly there’s Asian capital. Most serious capital will primarily flow to Melb or Syd CBD.
     
  8. Melbourne_guy

    Melbourne_guy Well-Known Member

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    I like working from home and it does work but I couldn't do it on a full-time basis. The group environment of the office breeds better ideas and solutions and a better learning environment to assist junior staff.
     
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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    I have worked soley from home for over 6 years, my colleagues, clients and I are in contact via Hangouts, phone & email. Now who doesn't email their colleague in the next workstation - you can manage that from anywhere. We had an office less than 3km from my door, I got there twice in over a year. One of my other colleagues found it difficult to transition to full WFH but has now taken it in their stride, for others it was the 'I don't need to commute 1.15 hrs each way'.

    Not everyone is suited to the task of WFH, some need to be in the CBD, need the retail therapy or the vibe. I'll pass.
     
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  10. gman65

    gman65 Well-Known Member

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    I'd almost argue, if the company can't WFH, there is something wrong with the culture of the company, and their leaders, not the concept..
     
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  11. Beano

    Beano Well-Known Member

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    Yeah so long as you don't commute pass the kitchen or fridge . You will end up not only wasting lots of time but also gaining extra kilos :)
     
  12. Tony3008

    Tony3008 Well-Known Member

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    You need to stay 1.5m from the biscuits at all times. Weighty penalties for disobedience :)
     
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  13. The_Billy

    The_Billy Well-Known Member

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    In light of recent events our company proposed a WFH rotation. Most people are not on board, as the rotation is now causing more logistical difficulty than the risk of infection spreading. As said above by gman65 it's cultural, in our case it is not being accepted by mngt and only passed down half heartedly, for appearances sake, it just isn't working. I think there will always be a demand for commercial space as a result, some businesses just cannot operate with out a base.
     
  14. Beano

    Beano Well-Known Member

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    The success of @Scott No Mates six years of working at home vs working at a office is measured by the BMI indicator before and after. :)
     
  15. Scott No Mates

    Scott No Mates Well-Known Member

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    I try to ride my bike to work a few times each week. I get lost between the front door and the gate, some days it might be more than 30km door to door :confused:
     
  16. Buynow

    Buynow Well-Known Member

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    My office now has 95%+ of people working from home. I think those left in the office are the ones who don’t like WFH. CEO is also working from home. It’s working well.

    I think that this experience will see greater acceptance of working from home and reduce demand for office space.

    I just need to restore the food/wine/exercise balance that has been destroyed by the move to WFH.....
     
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  17. Melbourne_guy

    Melbourne_guy Well-Known Member

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    This. I work from home occasionally but its different knowingly being confined to barracks for a prolonged period. I too need to find a better routine.
     
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  18. albanga

    albanga Well-Known Member

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    1000000%

    This is what working from home looks like for me:
    - Desk with computer chair and large monitor along with a keyboard and mouse (no different to office)
    - All key software is cloud based (no different to office in terms of speed and reliability)
    - Cloud based phone with headset at home and mobile twinning enabled in case I’m in the pantry (no different to office)
    - Team Chat and Video Software (Every Team has their own group and others can join anytime for instant messaging, voice chat and video chat) . Pretty much no difference to being in the office.
    - Countless large video conferencing and audio conferencing rooms (This Friday 20 of us had after work drinks. Probably the most fun I’ve had after work drinks in ages. Didn’t have to rush home to see my baby. Had seen her and spent time with her so was free to slam down a few cans whilst talking to my colleagues).

    Every argument I’ve read for WFH not being viable is simply a lack of understanding what technology is available and what is possible in 2020.
    Our payroll department is currently WFH. If their was ever a department that believed they cannot WFH it is them. And I get it, they need to be very coordinated given for a recruitment company paying 2000 temps on time is critical.
    Love and behold in their first week they Smashed it! Probably their most efficient payroll in months.....

    Just looking at my company we have an entire huge office floor in central Melbourne CBD. I would hate to think the rent.
    I could say we could comfortably reduce that space by half with WFH and have zero loss of efficiency. If the exec team didn’t already know this they will by the end of this.

    My guess is every other company will now know and we will move towards smaller rotating office spaces. I agree with arguments that you wouldn’t always want to work from home! I would go crazy as well.

    But every team in every office in the world has busier days. It will just become the normal to base your rotating staff to be in the office on their busier days.
    I mean this all just makes logical sense and if anything CV19 may be the kick in the butt to make every company realize this.

    And finally as I have said for endless years now. Remove the need to have people working 5 days in the CBD and watch housing affordability inadvertently get resolved. I live 14km from the CBD in a mil median suburb because I need to commute daily. If I only needed to work 2 days in the office I would Happily move 45km away and catch a VLine twice a week.
     
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  19. The Falcon

    The Falcon Well-Known Member

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    Re offices, We talked about this in another thread last week. I largely agree with you. I do think though that businesses with CBD offices will not quit the CBD, but many will look to reduce space requirements after being pushed to remote working and finding ways to manage. So demand for smaller offices going forward.

    In time vacancies (after price rebase) would be filled by businesses outside the CBD who couldn’t make the rent work. CBD still has a massive advantage over the burbs allowing a company to draw talent via public transport from all over the city and provide excellent extra curricular activities :)
     
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  20. albanga

    albanga Well-Known Member

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    Yep totally agree with this.
    My topic I realize is probably not the best as I don’t think CBD commercial will end in terms of being tenanted and 100% agree bigger businesses will still require CBD presence.
    I think construction of new office space will be over for as far into the future as I can see.

    Once we factor in the closed businesses and the consolidation of floor space for the ones that survive. I can’t see demand for new for a very very very long time.

    I would love to see the construction industry moved to infrastructure projects in light of this but unfortunately that is all Government spending and I don’t think Government will be spending for a while after this. So not sure what will become of all these trades.