IS THE CBD STILL IN ICU?

Everyone here at B & P is wishing and hoping that there is a CBD recovery of sorts in 2021. News of a potential vaccine, while encouraging, will likely take a year before it is adopted in a widespread fashion. In the meantime, Covid adjusted CBD worker and consumer behaviour will likely prevail. Certainly CBD areas will not be augmented by trade from international tourists anytime soon – 2022 at the earliest most realistically.

Cashing The Reality Check

The recent US presidential election had a clear winner. The betting firms have all paid out on the result. The current Whitehouse incumbent however is not swayed by facts. Confronting as facts and analysis are, and as comforting as denial can be, when it comes to predicting what CBDs look like we can only go with what the current data and short-term trends suggest. Five key facts stand out:

1. The majority of CBD workers now work from a country called Zoombabwe. They are unlikely to be back in the CBD anytime soon. Current estimates of daily CBD workers returning to the office vary from 40% of pre covid number in Sydney CBD to a high of 70% pre covid in Perth. Melbourne is only beginning its journey back. Remember it has been estimated that 39% of Australian jobs can be done from home. B&P predicts that going forward the daily number of workers returning to the office will decrease by at least 20% per week.
2. 1 in 2 businesses in the CBD are hospitality related. CBD workers (working now at home) won’t be commuting in to get coffee at their favourite lobby café no matter how good it is. Spend has been displaced from the CBD to the suburbs and consumption patterns altered. This is good news for growth in hospitality venues in the suburbs, but B&P predicts a contraction in numbers of CBD based F&B businesses.
3. Catering for CBD food operators has more or less vanished. This revenue stream was where good operators made the cream when it came to profit – up to 30% of MAT. Going forward MAT will reduce, putting pressure on occ costs.
4. As offices do return, many organisations will settle on lower head count and/ or a combination of workforces having a mixture of some office days plus working from home. We expect Mondays and Fridays especially to see less workers in the CBD.
5. Office CBD floorspace per company is predicted to shrink by 20% (combo WFH, share space and Regional offices). Not all vacant CBD space will be backfilled. B&P is developing a new scorecard to rate which buildings will have a better chance of re-leasing space over others – not every building will be a winner.

The Rental Challenge

Even the very good operators will find the environment challenging in 2021. With a reduced customer base, the levers that they can pull to manage their businesses are limited. Those who control food costs and are clever enough to take advantage of all government subsidies (eg. Jobmaker as Jobkeeper comes off in March 2021) will be better placed to survive. But their ability to pay pre covid rent in the short term is compromised.

The Retailer Solution

Retailers need to be encouraged to ensure that all revenue streams are identified and maximised. They also need to avail themselves of all government wages subsidies and be focused on forecasting sales and profit on a monthly basis. Effective marketing which targets customer acquisition and spend  value will assist greatly. B&P has developed a range of products to help operators maximise their sales and profits. Check our CoVID product page on our website here for further info:

If the operator is doing as much of the above as possible there may be a need for asset owners to consider some innovative rental solutions in the short term.