Will COVID-19 be the demise of CBD commercial?

Depends where you are talking though. I can only speak for Sydney which has a lot recently completed (eg Barangaroo towers) and more coming on line in the next year or two....already underway.

I think long term demand will grow but a lot more slowly than in the past and you may well see a decade long hiatus...I wouldn’t expect to see any brand new projects in coming years in Sydney for sure.

 

All I can say is good luck to those owners. They will need to practically give them away to have them tenanted.

 

I doubt that. Fringe CBD and the garbage south of park st will suffer, I expect CBD core to be Ok but price will need to rebase somewhat.

 

Just read Steve McKnight Is starting an Australian property fund focused on distressed commercial real estate.

Exact same thing he did in the US after the GFC and did very well. Will be interesting!

 

Got a link?

 

Jump on the propertyinvesting.com Facebook page and he wrote a post. More details to come once he sets it up.

Also made a post that an offer he put on which was rejected coincidently have come knocking back on his door as now keen to negotiate. And this is only the beginning.

 

Cheers. Lots of distressed debt opportunities coming up.

 

The risks are the time required for recovery and the structural changes that will arise from WFH.

• Will this lead to a slower uptake of space?
• Less demand?
• More start-ups creating more demand for collaborative or shared space with all services available on a WIWO basis?

Unlike the GFC, a whole new way of working has been thrust upon many and their masters may grab the opportunity to impose permanent changes to the way we all work. One of the scarier scenarios is that as you are no longer required in the office, can the work be outsourced for no loss of productivity?

 

WFH doesn’t change a skill set and communication though. Just because your desk is in your home and not the CBD doesn’t change what your paid to do IMO.

My argument to this is on the contrary. You could likely higher more skilled staff at a lower cost. skilled people put $$ to time.

Companies willing to offer the flexibility will attract better staff and can pay them less simply due to the value of time.

I would consider myself fairly highly skilled and same with my IT colleagues. We often discuss this at length (probably why I’m so passionate about it). We all agree we would take a pay-cut to work from home full time. Depending how you commute to work their could be significant hard savings. If you drive to work for example that alone can run you at $150 per week if you factor in parking, fuel, etags, maintenance.
For those that don’t drive you still have public transport and fuel.

But it’s the time saved that is the value.
The average person would spend maybe 1.5-2hrs door to door 5 days a week.
10 hours a week by 48 weeks and you have got back 480 hours a year.

What’s 480 hours of your life back work a year worth?

 

I like WFH and have done it for about 8 years now with 3 different companies and different frequencies (3 months per year with the 1st one, 3 days per week with the 2nd one and 1 day per week with the 3rd one). However, not all companies want/can organise to have a large portion of its workforce working from home. A lot of issues can arise from VPN overload, slow speed to access share network drive (cloud based storage is not yet be fully trusted to store confidential information), restricted access to internal but super critical systems such as SCADA/online monitoring system, etc. This is the case with the 3rd company which is my current employer. While the previous one, an engineering consultant, it was much easier to accommodate wfh. And to be honest, I still value face to face interaction with other people not just in the team but also across the entire business. That's why I have never wanted to do full wfh.

 

Yeah but is that a result of WFH or simply a company outsourcing IT to the Phillipines for a cheaper cost. I would strongly argue that it has nothing at all to do with WFH.

 

Sydney response:

I was just discussing this yesterday.

I believe there will always be a demand for doing business from a CBD. The shops, bars and restaurants will largely be supported by tourism again and companies that conduct their business from CBD offices will continue to do so, albeit with the probable bonus of rent reductions and maybe reduced staff levels.

What we (in Sydney) will very likely see is a massive commercial devaluation of the new Parramatta CBD and similarly price drops in the surrounding areas domestically which were pumped up by the new Parramatta CBD hype.

The more affluent Sydneysiders locate themselves within proximity to the Sydney 2000 CBD and will continue to take jobs from companies operating out of there and therefore travelling to Parramatta CBD, as businesses were trying to move there, will be replaced with WFH. Basis of this theory? I’ve seen multiple cases first-hand and more will follow. Parramatta CBD is not the preferred place of work between the two for the bigger Sydney tax payers.

 

That's also a bigger argument for offshoring.

Then there has to be a change of employee mindset - need to adjust and factor in the savings (travel, parking space, FBT allowances, work/life balance, wardrobe/clothes, takeaway lunches, coffee's & substitute other costs)

Many will not accept lower wages ie a large drop as it has alot to do with mindset & ego.

 

To be super clear I also think full time WFH is not ideal. My suggestion is rotating office space based on busy times. In our company our core payrolls are done Monday-Thursday to they should be in the office those days. Invoicing Wednesday for accounts.
IT on Monday’s as everyone seems to be simpler after the weekends.

And so on.
And yes cloud is not yet 100% for all businesses but for majority it is. VPN’s time for remote access is very limited. Watch the shift now for any companies slow to this prior to CV19.

 

Yeah well said.
A lot of people I agree are shortsighted to the savings of WFH. And a lot of people prefer to earn than save.

It’s equivalent to people who are “too busy working” to spend 1-2 hours a year calling all their providers and asking for a discount.

2 hours of OT = $100
2 hours of phone calls = $1,000+ in savings.

majority would choose OT....

 

And the biggest thing by far for me and why I’m so passionate about this subject is what I have been banging on about on PC for 5 years regarding housing affordability.

My argument has always been as long as we have such a reliance on being located in the CBD we will forever have housing affordability issues.

Maybe just maybe a silver lining to this entire $&;& storm is this will start that movement.
It won’t happy overnight....but it will happen.

 

Totally agreed, we don't need high speed rail to the CBD but reliable internet to allow people to work remotely.

Even if it is through the adoption of local work hubs (hot-desks, videophone call booths, small conference rooms & small meeting rooms, at a suburban location).

 

My professional job has gone through a "mcdonalds-isation" in recent years, where the job requires a greater number of more specific tasks by each colleague within the team, to be done faster with less scope or requirement for any deep thinking - it is something that might be suited to offshoring more easily.

 

Offshored to countries that don't have Ellen, Dr Phil and Judge Judy. How can we work at home and compete with that