The rise of the suburbs – and the death of the CBD

As businesses abandon CBD working with many employees working from home, experts predict retailers will too, with the city centre instead becoming a hub for events, arts, functions, write Kirsty Wynn and Sophie Trigger.

Just
as Omicron was getting its claws into Auckland, Macie Stewart decided to open a cafe.

“It was a risk opening when I did but the opportunity came up to take on the lease of the building and I took it.”

But since opening the doors of Kinship on Takapuna’s Lake Rd in early March, Stewart has been busier than she ever imagined. She puts it down to city workers swapping the office for the comforts of their kitchen tables, garages or other home-working set-ups.

“I know a lot of my customers are regulars who are working from home and come in after their morning Zoom calls,” the 21-year-old says.

“They don’t have the commute so they have time to come in and grab a coffee or have morning tea.”

The cafe also doubles as a meeting spot and Stewart says there are a couple of regulars who bring their laptop and stay for a couple of hours.

“I have free Wi-Fi so they use that and have a coffee and a toasted sandwich.

“We have a few businesses nearby so they often meet clients here rather than in their office.”

City-side cafes and eateries have been hit hard by the pandemic. The Herald on Sunday can reveal that retail space for lease in the Auckland CBD went from 1.4 per cent in December 2019 to 14.4 per cent in December 2021. The figures, from Colliers NZ, are the highest recorded in its twice-yearly survey since the mid-1990s.

The Weekend Herald also revealed yesterday that Auckland CBD’s office vacancy rate increased from 4.7 per cent to 10.9 per cent for the same period.

But work-from-home life has spelled survival in the suburbs. The caffeine hit of a barista-made brew has been enough to lure people from their home office, bringing new life to local cafes.

Retail New Zealand believes many eateries or retail stores have seen a 10 to 15 per cent rise in sales while the industries within CBDs have seen dips of up to 50 per cent.

Business leader and architect of the four-day working week Andrew Barnes says that as companies adopt the hybrid model, where workers split their time between home and the office, we will continue to see the “rise of the suburbs”.

The popularity of local shops and cafes will grow as people continue to work from home for part of the week, he says.

It’s already evident in the UK where there had been a “boom” in smaller towns.

“The local coffee shop and butcher are enjoying a comeback.

“I see a decentralisation of what we have now to the point where life could be like what it was 100 years ago.”

Barnes says that with fewer people working in the city, businesses would gradually reduce their office space.

“As leases are renewed they can take that cost and invest it elsewhere in the business.”

It could mean some of the city-based cafes and eateries that closed during the pandemic might not reopen.

Since the pandemic hit, dozens have been forced to close and others had done all they could to remain open as they await the return of city workers.

Time for CBD rethink?

Auckland mayoral candidate Craig Lord agrees that now is a perfect time for a rethink on how the central city and suburbs function.

He says the realisation that people can work productively from home means the future of Auckland city is at a turning point.

“Is there actually a need for a central area packed full of corporations given so much is done digitally now? Overheads for businesses could be dramatically reduced by having suburban offices and people working from home.

“Maybe now is the time to press the reset button.”

In the past, the city was the place to go for retail, nightclubs and dining out but he says even that was changing.

“Once upon a time it used to be a place for special shopping trips but now that so many areas have large shopping malls, the public see no need to venture into the CBD.

“It’s awful to navigate, and not worth the time.”

He predicts many retailers will abandon the city and it will instead become a hub for events, functions and arts.

But fellow mayoral candidate and Heart of the City chief executive Viv Beck believes Auckland city will soon “regain its mojo” and finishing projects was the way forward.

“Other things that make a difference are open-air spaces to relax and socialise, and high-tech, sustainable office buildings with good facilities,” she says.

“Add to that great dining, hospitality and events and there is a real point of difference over working from home.”

Cities overseas have started to rebuild she says and workers in Auckland central have already started to return.

“You can easily meet up with clients and socialise in the city and it’s a great place for entertainment you can’t get elsewhere.”

Growth in suburban retail

Retail New Zealand chief executive Greg Harford says he is hearing that suburban shopping and eateries are doing better than they otherwise might.

They have seen a 10-15 per cent rise in sales while CBD businesses are down about 50 per cent.

“It is good for those suburban stores and suburban cafés but obviously for those CBD businesses it’s pretty dire.

“When people are working from home they simply go out less, that’s the reality. If you’re working and living in Mt Albert for example, you’re unlikely to be popping down to St Luke’s for lunch five days a week – you might do it once, you’re unlikely to do it every day.”

In Wellington, when the country moved to the red setting at the end of January, there was a big drop-off in both foot traffic and sales in the CBD and once the Parliament protesters arrived, things dropped even further.

“And it just hasn’t come back,” Harford says.

He says most people are still working from home but there are a lot of benefits to heading back to the city.

“Not least the social environment that people will be missing out on. But also the ability to pop out at lunchtime and do some social stuff, go to a café, do some shopping while you’re out and about.”

The rise in flexible working poses “big systemic challenges for CBD retailing”.

“It’s expensive to have a shop on Lambton Quay or Queen St. And if you don’t have your customers there it just becomes less viable to remain in the long run.”

There are other factors at play making it harder to sustain business, such as the council’s proposals for Let’s Get Wellington Moving, “which is effectively designed to drive cars and customers away from shopping in the CBD, as far as anyone can tell”.

Hospitality New Zealand’s Paul Retimanu says CBD eateries have felt the effects of employees working from home since January, and have not yet seen the signs they are returning to the office.

“Obviously when the Prime Minister comes out and says ‘Work from home if you can’, then a significant amount of people are going to take that up.

“The impact of that a lot of the businesses in the CBD, they’re getting no foot traffic, no patronage.”

CBD eateries have seen losses of between 30 to 55 per cent over the past few months, and Retimanu says some will struggle to survive.

“This has been going on for two years now, it’s a long time – so even if you just look at cash flow, a lot of businesses wouldn’t have made a profit for the last couple of years at all.

“For those that can hang on, who have some savings or some form of financial capital, it will be dwindling without a doubt. And I think there will be some casualties, absolutely.”

The impact of low patronage has been compounded by staff absences due to Covid, and the cost of goods going up.

Retimanu says hospitality was in for a difficult six months, coming off the back of the Omicron wave into winter.

There are also three short weeks with Easter and Anzac Day public holidays.

“Then we’re going into winter … so we’ve sort of got to hunker down and get through to September now.

“I think anyone who gets to the other side will do very very well. But it’s a case of who will still be standing, that’s the question.”

Light at the end of the tunnel

In Wellington central, bars and cafes have struggled, with some just starting to see light at the end of the tunnel as workers slowly returned.

Owner of D4 on Featherston St Dermot Murphy says his CBD business has been “decimated” this year, particularly during the lunch trade.

The absence of office workers has almost “wiped out” the bar’s lunch trade, which made up around 20 per cent of its overall takings.

Murphy kept all his staff on and tried not to reduce their hours, but there were times he had one staff member to every patron in the pub.

“But hopefully there’s light at the end of the tunnel now.”

This month, Murphy has seen the signs of corporate office workers returning to the CBD, with last week being the best they had seen all year.

“I had people in for lunches – it was brilliant.”

This week’s recent move to orange under the Covid traffic light system makes the light at the end of the tunnel even brighter for hospitality.

When visiting a cafe, bar or any other hospitality venue, patrons will no longer have to wear a mask when going to and leaving the premises, when using the bathroom or when paying.

While D4 has survived off the back of good regulars and an ideally-timed St Patrick’s Day celebration, Murphy was concerned for the overall health of the CBD.

“I don’t know how the little cafes are surviving, because I can get a group of guys or girls in, they all have three or four pints and that’s $120 in the till.

“These poor little cafes that serve a $5 coffee and then close at 2pm, I don’t know how they’re surviving.”