COVID-19 has smashed and changed the nation’s central business districts, but in her laneway gallery there’s nowhere else Sonja Ari would rather be.
- CBD office occupancy rates remain below pre-pandemic levels in all capitals
- More people are working from home a few days a week
- Landlords are offering more generous terms to secure tenants
“I told my partner, ‘We’ve got to go out,'” she says. “We’ve got to be out there and we’ve got to get people to see us.”
Together with artist Adrian Flor, her brand Awen sells locally-designed, Peruvian-influenced streetwear.
Alongside a popular online shop, the pair have just opened their first permanent store – in the heart of Melbourne’s busy Flinders Lane.
“Obviously, when you see it on you, you want to buy it,” Ms Ari says.
“Having a store and people seeing it and coming to chat, to mingle – they love us. So we love them, too.
“Online, it’s different. You see it and (think) ‘Yeah, that looks good’, but you might not buy it.”
Life has not been easy in the central business districts (CBDs) of our biggest cities, almost three years since the onset of the COVID-19 pandemic.
Office occupancy rates are still below 2019 levels, overseas tourism is still lower than its peaks and a construction and renovation boom means some areas are more scaffolding than storefronts.
But Zelman Ainsworth of AP Property is upbeat about the prospects for CBD retail nationwide, as he connects landlords with tenants looking for a city.
“Retailers recognize that the CBD is the heart of the state,” he says.
“Everything happens here. And starts here. And grows here.”
That a real estate agent thinks that right now is a good time to invest isn’t new.
What has changed is the mix of businesses seeking space – often brands like Awen, coming to the city for the first time – which Mr. Ainsworth describes as a “reset” of tenancies.
“That’s created opportunities for smaller businesses,” he says.
“So you’re seeing a lot of creative, interesting, entrepreneurial businesses doing some different things that weren’t available to them previously.”
Rents aren’t exactly falling, but the deals being offered are different.
Instead of a standard lease running 5-7 years, landlords are now open to 2-3 year leases, which lessens the risk for businesses making the investment in a city store. Essentially, they’re being more flexible.
“It’s giving landlords the opportunity to ensure that their tenants are there for the long term,” Mr. Ainsworth says.
“But at the same time, you’re seeing property prices sell at the same values and even better values, so we’re not seeing much drop in much of the retail rents in the city.”
The picture becomes more complex when you understand that working from home (WFH) isn’t a trend that’s going away.
Instead the data is cementing: WFH days are now a permanent part of the week for a typical office worker.
Even cities like Brisbane, Adelaide and Perth – largely spared the worst impacts of pandemic lockdowns and work-from-home mandates – have seen a drop in office occupancy from 2019 levels.
“We think 80 percent office occupancy is a clear victory for Perth and takes into account that people are working a bit differently these days,” says Sandra Brewer, executive director of the Western Australian division of the Property Council of Australia.
“If the last two years have taught us anything, it’s that flexible work is here to stay.”
Property Council data from November suggests that on a low day offices in Melbourne and Sydney’s CBDs are respectively at 39 percent and 41 percent of the occupancy they enjoyed before the pandemic began.
The peak day occupancy (Melbourne 75 per cent, Sydney 74 per cent) is better, but still leaving the city centers emptier.
Ms Brewer says it will take work, but CBDs are already shifting to a more diverse mix of offices, shops and residential buildings.
“Cities are always evolving. And this is just another change in the culture and our society that cities need to respond to,” she argues.
One element is an increase in sustainable buildings and innovative “premium offices” to attract and retain staff.
“It’s going to be better, more luxurious office space,” she says.
“Those old buildings will have decisions to make, whether they need to reposition or whether they perhaps need to start again.”
You would think it’s a pretty simple equation.
Fewer people in the office, more days being spent at home equals smaller, cheaper offices.
But the opposite is happening.
“We’re seeing that people are taking up slightly more space and the biggest thing is actually moving into a better office,” says Sameer Chopra, head of Pacific research at commercial real estate giant CBRE.
Rent is only about 2-5 percent of costs for most companies with offices in the CBD, whereas salaries and wages make up about 40 percent.
“So to keep their people happy, they’re happy to do this trade off,” Mr. Chopra explains.
“They’re trying to get closer to the clients and give the clients – as well as their staff – a good experience. That’s been a big driver.”
With occupancy down across the nation, those more luxurious office spaces are changing. It’s no longer just “Zoom rooms” to accommodate video-conferencing, but broader renovations.
“What we’re finding now is that there’s a real demand for, and premium on, meeting rooms for in-person meetings … we’re seeing big technology upgrades, better wi-fi systems, better audio-visual, better kitchens.”
The patterns of city life have changed since the pandemic began, almost three years ago. Previously, Friday was the biggest day for traffic – feet, cars and public transport – in the city.
Indicators are now that it’s Thursday, with strong figures for shoppers on weekends.
And people who haven’t visited for a while can expect some new things to see, alongside the destruction that COVID-19 wrought on many areas.
“All major retailers want to have stores in all major cities, and Sydney and Melbourne are on top of that list,” says Mr. Ainsworth.
The reason isn’t just branding, he adds, but the performance in selling stock.
“And now we’re seeing Adelaide, Brisbane and Perth being recognized by global retailers as cities they want you to further explore and invest in too.”
Having helped tile, paint and carpet her store, Ms. Ari wants to stay in the city long-term.
“If you’ve got a passion to do it, you should do it,” she says.
“Because we need more people like us to come out and open stores like this and bring the city back to life.”