Are we about to witness the death of the Central Business District?
The Central Business District of any major city in the world has fundamentally performed the same function in its local economy for the last 50 years. Is this about to change as a result of COVID-19? Are we about to see the death of the CBD, as we know it?
It’s not that CBDs haven’t changed at all. Businesses have come and gone. New buildings have gone up between the old. Spaces have been refitted and repurposed, reflecting whichever business sector is thriving at the time. Trends such activity-based-working and Agile have changed internal office layouts. Smokers have been sent outside. Shopping malls and suburban high streets have scuttled much consumer activity out of the CBD and into the urban ring, even while flagship stores have remained anchored in CBDs for foot-traffic, tourists and brand prestige.
CBD eateries have changed too. In Australia, these have evolved to meet the working population’s demands for coffee, fast health food and casual fine dining, as well as tourist traffic, which rarely spills outside the central grid and therefore is a captive transitory consumer. Of late, co-working spaces have grown in popularity and are now mainstream for start-ups and corporate innovation arms. City sprawl has driven commute times up. With that, city apartment living has also grown.
So, yes, there have been plenty of changes to the composition of CBD activity. What hasn’t changed is the fundamental role that the CBD has performed in its local ecosystem: CBDs have behaved as a central economic hub attracting a distributed workforce with the promise of work. CBDs breathe millions of people inwards in the morning and exhale them all out to the suburbs in the evening. Industries that thrive on physical rather than digital traffic, from hospitality to live entertainment, have attached themselves to the CBD ecosystem and gorged on the inflow of people.
It’s this movement of people that may change permanently, altering the role of the CBD forever.
Prior to COVID-19, economic growth had caused most CBDs to become overcrowded and congested. City offices were full to bursting. Car congestion was worsening in all CBDs that had not banned vehicular traffic. Public transport was bulging at the seams as more and more people came to the CBD for work. Attempts to create second or regional business districts to relieve the pressure, rarely succeed. CBD space remained scarce and coveted, keeping commercial property rates higher in CBDs than elsewhere.
It could be said that, pre-COVID, our urban ecosystem had reached a kind of Nash equilibrium, stabilized on a formula in which people’s physical proximity = economic productivity. When most people live in the suburbs for space and proximity to schools and amenities, a radial hub is the most efficient way to feed the formula with people.
But COVID-19 may be about to change the game permanently causing a new equilibrium of sorts, in which the old CBD formula is permanently broken. Let’s take a look at how this might happen.
Most of us have learned to work from home. Going by the amount of online chatter about how to cope with working remotely, having to think about our new routines and work patterns was, at first, a shock to the system. However, as many have pointed out, people were dealing with more than just a workplace relocation. People were dealing with the panic of a health crisis, the fear of loved ones becoming sick, the fear of job loss, of economic hardship and the challenges of caring full-time for children. Working from home without the panic of a pandemic, when children are back at school, is a much more agreeable proposition and one most of us now know we could cope with. It may even be what we prefer.
As parts of the world start talking about easing the restrictions on the movement of people, study after study has turned up the unsurprising result that we are now less inclined than we ever were to want to return to the office. In fact, most people, if they had a choice, would only go into work sometimes. Maybe two or three days a week. On other days we would prefer to enjoy the freedom of being commute-free, having more time for family, exercise and leisure activities. It seems we have collectively remembered that we work to live, not the other way around, and we’d like it to stay that way please. The psychological contract with employers has changed, and this change is almost certainly irreversible, whether the desire can be delivered on, or not.
Some companies are jumping on this trend and turning it into a competitive advantage. Twitter, for example, recently announced it would make working from home a permanent opportunity for its employees[i]. On a company tweet, Twitter announced, “Opening offices will be our decision, when and if our employees come back, will be theirs”, adding “When we do decide to open offices, it also won’t be a snap back to the way it was before,” the company said. “It will be careful, intentional, office by office and gradual.” What Twitter has realised is that breaking the proximity = productivity nexus is a win-win for them. Happier employees, eventual lower property costs, equivalent or higher productivity. This is a canary in the coal mine for other companies thinking about how they might approach the situation. Witness Square, who followed Twitter’s lead just days later.
Interestingly, the working from home shift has extended beyond knowledge workers. Even health practitioners have taken at least some of their practice into the land of telehealth and digital services during this period of restricted movement. Retail still requires large workforces to turn up to the workplace in person, at least for the next few years until automation and digitisation changes even that. But retail is not the reason people come into the CBD – physical retailers are dependent on foot traffic, which is in turn dependent on office workers. CBD retail lasts only as long as people are visiting the CBD and as long as retail retains its bricks and mortar presence. In any case most large physical retailers long ago moved into more profitable urban hubs and malls.
As a result, commercial property holders are already re-evaluating their CBD holdings. “Will people need that same allocation of CBD office space in five years’ time if we start getting very comfortable with the idea of people sitting on Zoom meetings and working at home?” asks Mark Delaney, Chief Investment Officer for Australian Super. “I don’t think we’re talking enough about that.[ii]”
It might start small, but the behavioural adoption of part-time CBD working may be enough to cause an irreversible tipping point. Let’s play out a few scenarios and see what happens.
On safety, first. We may be about to reopen our office buildings, but any CEO will tell you this is not a simple matter of reopening their doors. How to guarantee the safety of employees and customers? The legal, brand, operational and reputational implications of a business not protecting people from infection, as the cruise ship industry and meat works around the world have demonstrated time and time again, make this more than simply a regulatory compliance matter. This is a business survival matter. One infection and your customers may not buy. One infection and your workforce may need to quarantine, temporarily shutting down your entire operation and risking permanent closure. One death related to an infection found on your premises, and your business could well be toast. The stakes are high.
Safety, in the context of COVID and other pathogens, is not easily delivered. This has always been true, but now we know it through experience. This excellent article [iii] on what is currently known about global outbreaks paints a grim picture for the typical CBD workplace based on real life examples. The virus seems to spread more rapidly in crowded spaces where people are unable to social distance, are alongside each other within closed air environments, with inadequate ventilation (which could simply mean the wrong placement of a single vent or fan), surrounded by cool and dry air. Doesn’t this describe most office environments?
What about hot-desking, which is deliberately designed to maximise the flow of people past each other, giving pathogens ample opportunity to spread more rapidly from person to person. Countless studies done by Harvard Business Review and others on the reality of open offices [iv] have demonstrated that open workspace designs have been counterproductive to their stated aims, actually reducing face-to-face collaboration in all but the most culturally progressive of businesses. Fascinatingly, the HBR study found that most people in open offices have invented a “fourth wall” to create the illusion of privacy and distance between their closely seated co-workers. The study concludes, “If you are going to let people choose the spaces that best meet their individual needs, your workers might as well be remote.” And this was pre-COVID.
Unfortunately, most CEOs still believed they were catching onto a winning trend and have spent the last 5 years converting their offices into open hot-desking spaces, where the one desk or meeting room is encountered by dozens of people in a single day. The fourth wall doesn’t protect against pathogens. Indeed, no amount of repeated desk wiping by diligent employees will make open offices and hot-desking, or activity-based working, or whatever your firm euphemistically calls it – safe. As the pioneer of activity-based working in Australia, James Calder explains, “Until we have a vaccine, I can’t see how ABW work settings in their full capacity mode can actually be used. They’re just like land-based cruise ships.”
Solutions to COVID challenges like this are not evident. Sanitisation is not enough. Replacing hot-desking with walled offices, is not enough and very expensive. Cleaning the bathrooms several times a day, is not enough. Checking people’s temperatures as they walk through reception is not enough. Staggering workforces over different times of day or days of week is not enough, and highly restrictive to people who need flexibility in their day for other reasons. Testing workers is not enough, and in any case, mildly unpleasant and as unwelcome as a needle. None of these solve the problem of how to get to the CBD without exposure to the public on public transport. If you drive instead, where to park your car along with every other person who drove that day, and at what cost? Most large office buildings host thousands of guests each day. Will we stop all movement of people into our workspaces other than employees? How, then, would we hold the meetings we need to hold? Oh that’s right, Zoom. But why, then, are we in the office again?
We can look to Wuhan to see how some have approached the safety challenge. This fascinating article, “Inside the Dystopian Post-Lockdown world of Wuhan,” [v] paints a grim picture. Describing Lenovo’s tablet and phone factory, on the outskirts of Wuhan, workers were subjected to entirely restrictive measures in the interests of safety. “Before returning to the site, staff members had to be tested both for the virus and for antibodies that indicate past illness, and they had to wait for their results in isolation at a dedicated dormitory. Once cleared, they returned to work to find the capacity of meeting rooms built for six reduced to three and the formerly communal cafeteria tables partitioned off by vertical barriers covered in reminders to avoid conversation. Signs everywhere indicate when areas were last disinfected, and robots are deployed wherever possible to transport supplies, so as to reduce the number of people moving from place to place. Elevators, too, are an artefact of the Before Times; everyone now has to take the stairs, keeping their distance from others all the way.”
While some might say we say we won’t go this far in Western economies, this was also said about lockdowns, as much of the world witnessed those quiet streets of Wuhan and Italy in various states of disbelief. The real question is not whether we are prepared to go this far, it’s what alternative we have, other than not working in offices and workplaces at all.
It’s possible that reaching a safe workplace particularly in a CBD set-up is not possible. But even if it were possible, how many of us will want to work the way we have to to stay safe. Wuhan might be an extreme guide, but if our allotted time doesn’t overlap with most people we need to converse with, why go into the office? If we have to separate ourselves at lunch breaks and can no longer socialise with work friends, why go into the office? If we’ve learned how to be productive over zoom, why risk public transport and waste commute time only to zoom from the office? If you have to subject yourself to the fairly unpleasant process of COVID testing just to sit apart from your co-workers in desks separated by spray screens, why go into the office? If going to the bathroom presents a life-threatening health risk, why wouldn’t you stay working in the comfort of your own home? Yes, many of us miss the interactive and “grown up” spaces of our former workplaces, where we could turn up in our professional clothes and adopt our work personas away from the other roles we play in life, but it’s hard to see this former environment being the workplace we will return to.
Until a vaccine is available (and this is may not happen for years, if at all), we remain in a limbo state where, even though “open”, our CBD spaces do not function the same way for us as they once did. And now that we are wise to the threat of pathogens, would we ever risk returning to those pre-COVID behaviours, even if a vaccine for this pathogen is found? Evidence of increasingly frequent pathogens and pandemics suggests that COVID -19 might only be a warm-up act compared with what’s to come.
We might return to our CBD workplaces in dribs and drabs before we discover that it wasn’t the place we left. Then, as we quietly slink back home, most workplaces simply won’t be able to force people to return. Either way, it looks quite likely that we will, whether in the short or medium term, slowly start to depopulate the CBD, which will lead to companies exiting their leases over time, which will depress commercial property rates, force closures in retail and hospitality and deliver a new Nash equilibrium, in which the CBD is no longer a people hub.
Imagine all those empty buildings! Will they stay empty for long? Unlikely. At reduced property rates, perhaps many will be converted into data centres. Afterall, centralised data is the most efficient model to keep a populous and economy connected, and it can be argued that the new normal will result in this: data flow = productivity. Perhaps, taking advantage of data and processing centres, the CBD will become a perfect location for sterilised and low-maintenance research hubs. If some offices can be repurposed to accommodate social distancing, higher education and training centres, which are already CBD tenants, might be able to attract back students, with the model made economical by lower property costs. Perhaps the CBD will become just another suburb, housing students, and front-line workers such as cleaners and health workers, efficiently ferrying this workforce from their CBD homes radially to their suburban places of work in a complete reversal of the historical flow of the daily commute. Such a model would reduce commute times and increase the mobility of any company that delivers its work in the home or suburbs. Perhaps CBDs will be re-greened, plants taking the place where cars once were, solar panels covering surfaces to fuel the city’s power grid. Local places where we can meet our co-workers for a pre-planned gathering, while maintaining a comfortable social distance, will become mainstream for everyone. Co-working spaces will pop up in the suburbs (perhaps a few will remain in the CBD) and eventually virtual reality spaces may be the places we go to escape the monotony of our homes and of endless zooms. Afterall, teenagers have been doing that for years.
References:
[i] https://www.theguardian.com/technology/2020/may/12/twitter-coronavirus-covid19-work-from-home
[ii] “Super CIOs defend illiquid assets”, Financial Standard, 30 April 2020: https://www.financialstandard.com.au/news/super-cios-defend-illiquid-assets-159476031
[iii] Dr Erin Bromage, “The Risks – Know Them – Avoid Them”, erinbromage.com, 7 May, 2020: https://www.erinbromage.com/post/the-risks-know-them-avoid-them
[iv] https://hbr.org/2019/11/the-truth-about-open-offices, Harvard Business Review, November-December 2019
[v] https://www.bloomberg.com/news/features/2020-04-23/wuhan-s-return-to-life-temperature-checks-and-constant-anxiety