Wrecking Ball Will Claim Older Offices as Seismic Shift Rocks CBDs

The era of the CBD as the economy’s engine room is over. Not dead. Not deserted. Just no longer the engine room. According to Macroplan chief executive and author Brian Haratsis, its purpose will be as a place of ceremony. “It’ll be the seat of government. It’ll be entertainment, recreation, dinners,” Haratsis says of the future city centre. “And it’ll still be important in terms of corporate headquarters … because central is prestigious.” It is, in other words, about optics rather than necessity. And that is a very different proposition for the owner of an ageing office tower. Haratsis, a veteran retail and property strategist, has co-written AI Cities + Renewable Energy Regions with his son, Declan, who led much of the underlying research. The book argues that the way Australia plans, funds and builds its cities is about to be inverted. Decentralised cities on the rise The core idea is hyperdistribution, a term the father-son duo coined to describe a re-weighting of investment away from the inner city and towards outer and regional areas where people are moving to. Declan explains it in terms of cost and benefit. Inner-city investment still delivers strong economic multipliers, “better than anywhere else”. But building costs have crept up. “The cost benefit of investing inwards has decreased very, very significantly and rapidly,” Declan says. At the same time, cloud technology and data centres have lifted the value of places once considered relatively unproductive. “This is a structural change that will never reverse,” he says. ▲ The Melbourne office market has already experienced a significant shift in vacancy and values. Work from home paradigm The research draws on VISTA, the Victorian travel survey dataset, and it turned up an unexpected finding. Managers were the biggest cohort working from home. Routine “cognitive workers”, the repeatable accountancy-type jobs, are staying away in droves according to the data. “We found more managers were working from home than non-returned colleagues,” Haratsis says. Sydney, he adds, now has as many people working from home as Melbourne, partly because of commuting costs and congestion. Public transport use per capita in Brisbane is below pre-pandemic levels despite 50-cent fares, and Melbourne is down about 20 per cent, he says. He says this is why offices in Melbourne and Sydney are struggling to gain traction. The office problem For the top of the market, Haratsis is sanguine. Premium and A-grade towers will survive the exodus. Everyone else has a problem, he says. “The A-, B and C [grade] are going to rapidly go out of favour,” he says, pointing to a vacancy rate of about 20 per cent in Melbourne. And conversion is not the easy answer. Many buildings are too expensive to rework, contain asbestos, or simply cannot be redeveloped. “We would think it’ll be 50 per cent demolition and 50 per cent reuse max,” Haratsis says. “Fifteen years ago, we were all predicting office buildings to be going forward en masse in CBDs and TODs, right? That’s no longer the case. We got it wrong. We just got it wrong.” Following the money to the regions Haratsis says capital is already flowing into data centres and away from office development. He says data centres took up 27 per cent of industrial land in Melbourne and Sydney last year. Logistics is following. Online retail penetration sits at about 15 per cent today, and the pair see it reaching 35 to 40 per cent in the future. And the scale of the new data centres all but rules out infill development. Haratsis says projects, such as Amazon’s 200,000sq m Sydney warehouse, are impossible to build in established areas. Planning’s ‘optionality’ Their most provocative argument is aimed squarely at planners and policymakers. The pair say predictive planning, in which government forecasts where population will go and then designs infrastructure to match, “has only piled on costs”. Their alternative is “optionality”. Preserve the options rather than trying to predict the future. “If you can’t think of a reason to say no, then you should let it go ahead.” Melbourne Water is the case in point for the problems with status quo. It is statutorily obliged to build its future network on projections, so if a landowner wants something different, “you’ve got to go through years of Melbourne Water figuring out how to redesign their whole network based on the plan that they wrote 10 years ago,” Haratsis says. "We all know predictive planning doesn’t work, trying to predict the future 20 years ahead," he says. “Detailed local planning has never worked.” ▲ Capital is flowing away from office development and into data centres and logistics, according to Brian Haratsis. Haratsis says developers should fund and build out their own infrastructure under the optionality model, which would save both time and cost. “If they can’t do it, they don’t have a project.” The affordability case is where the authors think the debate is lopsided. “Nobody ever thinks about the cost that’s put on the consumer. They only think about the cost of delivering the infrastructure [to regional areas].” They cite Infrastructure Victoria’s 2023 scenario work, which they say found only about a 5 per cent difference in long-term cost between a concentrated city and the most distributed one. In a 2023 Victorian study, 68 per cent of people said they wanted a traditional homes at prevailing prices. Haratsis reckons it would be 80 per cent now. A three-bedroom, two-bathroom apartment of 85 to 90sq m at Kensington sold last year for about $1.1 million. The authors say the equivalent on the fringe is $600,000 to $700,000. Apartments, they argue, would need to be priced around 20 per cent below a comparable greenfield homes to attract enough buyers to the city centres. The pair is under no illusion about the reception to their book, and they invite readers to “build on it or shoot it down”. “We are wanting to tear down the rigid planning at the moment because it is totally unproductive.” “The academics won’t be on my side,” Haratsis concedes. But he is unrepentant. “We’re not just ruffling feathers and we’re not going to go away.”

Wrecking Ball Will Claim Older Offices as Seismic Shift Rocks CBDs

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