From central to distributed business districts

 

A long-term shift in urban economies was arguably already underway as growth in finance, property and business services – the industries that fuelled the rapid growth of global CBD office markets in the 1990s to early 2000s – began to slow, while more suburban focussed industries such as health and education took their place as engines of growth for metropolitan jobs.

Then we had Covid in 2020 and mandated lockdowns, which most impacted centralised office workers who discovered they could (largely) do the same work remotely by working from home, saving not only the cost but also the time and inconvenience of the daily commute. Those work from home habits are proving hard to shift, and many large corporations and public sector agencies struggle to get their expensive offices attended 5 days a week. In response, building owners and their tenants have invested in the amenity of the office – often at significant cost – to try lure workers back, with mixed results.

There is now a growing body of international evidence which suggest that policy makers need to realise this is a long term, structural economic change, and that traditional approaches to city and regional planning should be rethought. One such piece “Post-COVID Urban Spatial Reconfiguration and Remote Work Geography (2019–2025)”  looked at New York, London, Paris, Berlin and Munich and found the remote working impacts were having what looked like a permanent change to metropolitan economies. It found that commuting to central business districts remains below 2019 levels, while economic and residential activity is shifting towards suburban and secondary centres, accelerating the transition from monocentric to more polycentric cities.

Now we have the rapid growth of Ai, with the impacts on administrative and low order professional jobs already being felt. The US based Brookings Institute estimates that nearly one third of US workers could have at least half their tasks affected. Similarly sombre forecasts from Deloitte Access Economics, Job Skills Australia, the IMF, Goldman Sachs, the World Bank and others all point to similar job displacement brought about by Ai, especially on those occupations that have traditionally been housed in central city office buildings the world over.

A look at global office vacancy rates suggests the impacts of WFH have been unevenly felt, while the impacts of Ai on central office demand are possibly yet to be felt. For markets already carrying large volumes of vacant stock, it’s not a good outlook.

Seattle in the USA has an office vacancy rate of 38% while in San Francisco it is 29% according to Cushman & Wakefield. Colliers puts the financial district of New York at 22% while overall NYC is at 15%. JLL puts Paris at 12% and Knight Frank puts London at 8%, and Hong Kong at 9%.

At the other end of the scale, cities like Munich (1.7%), Singapore (3.3%) and Tokyo (1.4%) show this isn’t by any means consistent globally.

In Australia, the latest Property Council office market report shows vacancies in central business districts edged up from 14.8 per cent to 14.9 per cent – stubbornly staying at the highest level in three decades.

Here again the picture is not uniform: Melbourne sits on 19%, Sydney on 13% and Brisbane looking better on 10%. Equilibrium in a healthy market has for 50 years been regarded as around 5%.

None of these figures are expressed by building grade however, and the evidence seems to be that higher quality buildings are retaining and attracting tenants over older, less technologically superior or amenity rich stock. Which means that vacancies are tighter in institutional grade investment stock, but much worse in older style CBD office buildings. It is also fair to suggest that even where space is solidly leased in institutional grade towers, it isn’t being fully utilised five days a week.

This raises some significant policy implications. First, urban planning needs to recognise that CBDs are changing. Repurposing CBD office buildings has widely been touted globally but with mixed results – the nature of the lift and services core can make conversion to residential difficult, and costly. But other uses in central locations can present themselves. Why build new high rise schools for example, when city centres have buildings readily capable of conversion to education uses. Additionally, because they are centrally located, they typically enjoy the very best public transport services – terrific for school children. Health uses are already growing their footprint too – many buildings contain GPs, blood pathology, medical imaging, physio, optometry and other medical services. Once again, the central location can be an advantage.

Plus, CBDs are increasingly becoming the central amenity districts of many cities – where the best recreation, sporting, cultural, dining and entertainment facilities are to be found. Not to mention the best hotels and conference facilities. These often serve the wider metropolitan region, and in some cases an entire state. One look at the proposed range of capital investment proposed for Brisbane in preparation for the 2032 Olympics leaves you with one conclusion: the inner city is a big winner in all this.

The changing nature of the CBD globally is not something to be resisted, but it does mean that traditional thinking around transport, hours of peak activity, purpose and length of visit and other considerations could figure more prominently in urban planning. The idea that CBDs are primarily where office workers go to work is a narrow and now largely redundant view.

At the same time, regional planning and infrastructure priorities need to be refocussed on the needs of suburban hubs – employment and social infrastructure clusters where jobs growth is likely to outpace by a large margin the typical white collar city centre office worker profile. This will take time, given the mono-centric model of the dominant CBD core has evolved over many decades. But the changes are happening before our eyes now, and the evolution of metropolitan wide economies into a more polycentric model is obvious to all but the most ardent traditionalists.

CBDs will survive but they will serve different needs in the future. Suburban centres will grow and thrive but that will require a new mindset by policy makers and all levels of government. Resisting these inevitable changes will mean the worst possible outcomes for both CBDs and the suburbs.

Back to that paper with the very nerdy title “Post-COVID Urban Spatial Reconfiguration and Remote Work Geography (2019–2025)” – here’s a summary of their suggested policy implications for urban planning:

9.1. Urban planning should support mixed-use, decentralized neighbourhoods that reduce commuting and strengthen local economies in response to persistent remote work.

9.2. Governments should invest in digital connectivity, public services, and transport infrastructure in secondary and peripheral centres to enable balanced polycentric growth.

9.3. Transport investment should shift from peak-hour, CBD-focused systems toward flexible suburban transit and active transport networks.

9.4. Targeted investment and fiscal support should address emerging inequalities between economically dynamic and lagging regions.

9.5. Housing policy should expand affordable suburban supply while using land-use regulation to limit urban sprawl.

9.6. Cities should facilitate the conversion of vacant central offices into residential or mixed-use developments to support regeneration and efficient land use.

It concluded that:

“The policy implications highlight the need for a paradigm shift in urban governance. Rather than focusing on centralized growth models, policymakers must adapt to a more distributed and flexible urban system shaped by digitalization and remote work.”

“The transition toward polycentricity presents both opportunities—such as improved quality of life and reduced congestion—and challenges, including infrastructure adaptation and spatial inequality. Effective policy responses will be crucial in shaping the long-term outcomes of this structural transformation.”

Amen to that.