Property market update: How CBDs will survive post COVID-19
News from Realestate.com.au - Nerida Conisbee - Chief Economist
Central business districts across Australia are currently the most visible property market victims of COVID-19. The Property Council of Australia will soon release its office vacancy rate numbers, and you can expect to see an increase, perhaps doubling.
What they won’t show, is that most offices currently have very few people in them and it is likely we will see a marked rise in vacancy going forward.
Retail vacancy is rising and although shoppers are slowly coming back in most CBDs, the lack of office workers is biting. Foreign students are yet to return, and the rental market is weak, impacting apartments. A lack of tourism is impacting short term accommodation while hotels with the most occupants are housing returned foreign and interstate travellers.
Possibly the most vibrant of all Australian CBDs, Melbourne, is a ghost town as everyone is forced to shut shop for six weeks and wait out the recent surge of COVID-19 cases. It’s hard to remain positive about the outlook.
The way that we work has changed dramatically since COVID-19 and this is likely to lead to a distribution of activity around our cities and into our regions. This is something that many state governments have tried to implement over a prolonged time period, as our cities grow, congestion and travel times have grown. There has been a recognition that having so many workers in our CBDs doesn’t make sense, particularly if it takes many of them well over an hour to get there.
The Greater Sydney Region Plan most directly looks to redistribute activity and looks to develop three cities (Sydney CBD, Parramatta and Western Sydney Airport) where most residents live within 30 minutes of their jobs, education and health facilities. At a federal level, regional visas aim to get skilled migrants to regional areas to help boost population and economic growth outside our capital cities.
COVID-19 has likely fast-tracked what governments have been trying to do for some time through policy, but unfortunately, but the pace in which COVID-19 has required businesses and property owners to adapt, means many haven’t been able to keep up.
The recovery of our CBDs will take time and it will take a combined approach from federal, state and local governments, as well as business. At this stage, it is unlikely that everyone will return to the office in exactly the same way they did at the start of the year.
Office vacancy will rise, and it will take some time for it to come down again. Retail vacancy will remain elevated, and although, eventually, apartments will see a decline in vacancy, it does put into question the need for new development in the short-term.
Once the worst of COVID-19 is over, it is critically important that our CBDs are again showcased as great places to work and visit, and that policies are developed to get people back in there. In the early 1990s, the Melbourne CBD was a ghost town as Australia came out of recession. A quarter of offices were vacant and very few people lived there. The implementation of a planning policy, Postcode 3000, looked to residential development as the key for re-generation. It was a policy that worked incredibly well and led to a population and workforce surge over the following decades. Other CBDs around Australia then followed a similar pattern of growth. Now is the time to look at what the next iteration of Postcode 3000 could look like.
How to predict long term house price growth
Looking at price growth over the past 20 years for each capital city is fascinating and demonstrates that long term price growth is driven by these factors:
- Rapid new development – the list included many new suburbs, or otherwise areas that had a lot of new apartment development. This growth is a bit misleading as it is the brand new stock that is driving prices up so significantly, not price growth of the existing housing. New development suburbs, however, can drive up house prices of existing housing by offering greater amenity. In most new suburbs, retailing is improved, new schools are built, and public transport options extended.
- Changes to preferences – 20 years ago, living in a beachside suburb was not as popular as it is now. Similarly, the inner North of Melbourne wasn’t such a cool place to be. Picking these changing preferences is hard, but generally I would say look to where young people are moving. Urban re-generation is often driven by young people, but this is not a hard rule.
- Infrastructure spending – spending on public transport and upgrading of schools, roads and hospitals has a significant impact on house prices.
Living in a beachside suburb is more popular than it was 20 years ago. Picture: Getty
When picking suburbs or towns that are likely to see better house price growth, looking to where infrastructure spending is taking place is, in my view, the most reliable method. It was therefore interesting to see Infrastructure Australia release a report this week, which outlined the projects they consider high priority:
- M4 Upgrade from Parramatta to Lapstone in Greater Western Sydney
- Sydney Metro: City and Southwest – high-frequency rail connection between Chatswood and Bankstown via Sydney CBD
- Western Sydney Airport
- M80 Ring Road Upgrade – better connecting Melbourne’s North and West to the rest of the city
- North-East Link – connecting the M80 and M3 in Melbourne
- Brisbane Metro – infrastructure and non-infrastructure changes to bus services in inner Brisbane
There is a dominance of Western Sydney infrastructure projects, highlighting the growth in the area. Greater Western Sydney is now home to 10% of Australia’s population. In Melbourne, the focus is on the outer spine from the north-east to north-west. While in Brisbane, it is primarily the inner suburbs.
For housing, it is likely that these projects will benefit western and south-western Sydney in the same way that the north-west has benefitted over the past decade. Better connectivity in the northern and western suburbs of Melbourne will assist, while in Brisbane, it will be inner suburbs that benefit the most.