Although Sydney and Perth are separated by over 3,000 kilometres and have undertaken vastly different pandemic policy setting, there are behavioural changes which have become common to both cities. An analysis of commuting patterns, as well as commercial and residential property markets, illustrates the flow-on effects of increased working from home; a practice which has become more prevalent following the pandemic.
A major post COVID 19 change has been to commuting patterns. In WA, despite the lifting of compulsory mask mandates, there has been a significant drop in public transport usage. Transperth data shows patronage is down 35.6% from pre-COVID 19 levels. In comparison Sydney, where restrictions were in place for longer than Perth, and lifted in December 2021, public transport patronage remains down 14.6%.
In response to the fall-off in people using public transport car travel has risen 1.1% on Perth’s major city access roads, which represents approx. 5,000 additional cars per day. By comparison, Sydney car commuter traffic is down 19.6% from pre-pandemic levels.
Perth’s office vacancy rate has declined from pre-COVID 19 levels aided, in part, by leasing incentives and stock withdrawals. Even so, the drop in daily commuters, compounded by a structural increase in on-line shopping, has resulted in commercial retail vacancies increasing by more than 30% from pre pandemic levels. By comparison, in Sydney, the level of office vacancy and retail vacancy rates have more than doubled.
These results would indicate, despite vastly different pandemic policy setting in Perth and Sydney, working from home has become more of a working norm.
This PAR Group’s analysis, undertaken by Damian Stone of Y Research and Rob Ellis of The Data App, examined changes to commuting patterns, commercial property occupancy and yields, e-commerce spending and residential property transactions from pre-pandemic levels, to identify the impact of the COVID 19 pandemic on way Sydney and Perth residents live, work and shop.
Key Results
- Working from home, as well as fears of virus transmission, resulted in a significant change in Perth’s commuting patterns. In spite of a lifting in restrictions, public transports trips are down 35.6% from pre COVID levels, which is significantly higher than 14.6% drop in public transport recorded in Sydney.
- However, car use up a modest 1.1% on key access roads into the Perth while, in Sydney, car use remains down over 16% from pre-covid levels.
- Changed commuting patterns has resulted in fewer people going to work in the city. The Property Council, estimate, compared to 2020 levels, only 63% of the existing daily office workforce have physically returned in Perth, with Sydney even lower at 55%.
- As a consequence, the city retail sector has been significantly impacted. A lower footfall has been compounded by a 238% increase in the share of online spending compared to pre-pandemic levels. This has contributed to the vacancy rate for Perth city retail property increasing by over 30% to 17.8%. Whilst the City of Sydney retail vacancy rates has doubled, to 7.6%, it is less than half the Perth’s city vacancy rate.
- The global wall of capital, facilitated by record low interest rates, helped fuel house price growth in Sydney, rising in excess of 30% from pre COVID levels. The ability to work remotely during the pandemic bolstered demand outside of Sydney even more, with prices there rising 60% over the same time frame. More modest price growth has been recorded in WA, with metropolitan house prices rising by 13%, while prices outside of Perth increased just under 25%.
- In spite of border restrictions, the population of WA grew by 1.5%, or 751 people per week; more than double the rate of NSW. The stronger rate of population growth in WA can be linked to strong natural growth as well as the likely return over 6,000 West Australian from the east coast.
The table below outlines some of the transformations to Sydney and Perth’s way of life resulting from the pandemic and some of the ramifications on the property sector.
Implications
The long-term impact of COVID 19 not only represents a paradigm shift for commercial property in the cities of Perth and Sydney, but in Australia’s other major cities. The way people live, work and shop has changed and it is unlikely the end game has even been reached.
The changes to commuting patterns have been dramatic. From pre-COVID levels, public transport use in Perth has dropped by 35.6%. The fall-off in public transport use, while varying, is a common feature across Australia’s major cities. In Sydney, the decline in public transport commuting has been matched by a decline in car use on major access roads in the core of Sydney – 16.4%.
So far, the return to the office, widely predicted to occur once restrictions had eased has, so far, failed to materialise. Hybrid work models (for flexibility and business continuity), has resulted in only 63% of the daily office workforce physically return to their desk in WA, NSW is even lower, at 55%. City based retailers, which rely heavily on the daily office workforce, have experienced a significant drop in spending, all of which has been exacerbated by on-line shopping. Consequently, the past year alone, Perth has witnessed a decrease in the number of food and beverage retailers, as well as bank branches.
The current narrative revolves around getting office workers back to the city. The evidence, so far at least, suggests Perth and Sydney, like the other Australian centres, may also need to consider the scenario of fewer people working in the city than prior to the pandemic.
Media reports note many major companies are evaluating their workplace options, with 20% of staff at a major bank yet to return to the office this year. Incentive programs such as discounted public transport fares, food and beverage vouchers, wellness efforts, and promotional events have yet to deliver the desired response from employees.
Globally there is increasing evidence that working from home, in some form, is here to stay. Previously, the city was, for many workers, the ‘destination of default’, as all roads and public transport led to the city. Given the broader choices involved in coming to a physical office now, the city and its office towers need to give office workers a reason to be there, retailers equally need to have a compelling offering to entice retail spending.
In general, businesses reliant on people leaving their homes to spend money for retail, hospitality or to live sporting events are not receiving the same patronage as in the past, with people less willing to travel for any reason. All of which is currently being compounded by rising fuel costs. The evidence in Perth and Sydney shows people have not swapped public transport for other modes of travel. Workers are largely moving around less.
With carrot laden incentives so far proving only partially effective, what could be the next steps? Will there be added incentives, or more of a stick like approach to encourage people back to the office? This latter tactic has resulted in some staff resigning, rather than returning to the office, with the ABS estimating 11.7% of professional services staff changed jobs in 2021, up from 7.4% in the previous year. Other suggested measures to revitalise cities have been public transport subsidies and office conversion.
With the possibility business could be less central to the city going forward, the focus could shift to changing the makeup of the city. This could entail fostering more residential and entertainment uses, as well as international visitors (education and tourist). The creation of defined precincts, such as the proposed cultural and creative precinct south of the town hall in Sydney and education around the new ECU campus, to be developed at Yagan Square in Perth, could be used to attract more people back to the city.
What does seem clear, irrespective of the restrictions imposed during the pandemic, there is a similarity in the outcome, increased working from home has become a way of life. To alleviate this, it seems the focus needs to be on the role of the office post pandemic, as well as support measures for city retailers. If it is a case of encouraging people back to the office, actions to facilitate a return to public transport and incentives to encourage active commuting (walking and cycling) will be required. Without changes, the emerging legacy of the pandemic, will be fewer daily workers, with the result higher vacancy rates, particularly for secondary grade office buildings, let alone city retail properties.
For further information, please contact:
Rob Ellis, Director of the Data App. Mob: 0417 195 352 or email: rob@thedataapp.com
Damian Stone, Principal and Chief Problem Solver of Y Research. M: 0433 525 414 or email: damian.stone@yresearch.com.au
Other research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
http://par.group/perth-after-the-pandemic/
http://par.group/sydney-post-pandemic/
http://par.group/the-impact-of-covid-19-on-the-australian-office-market/
http://par.group/getting-quarter-of-million-workers-back-to-the-office/
http://par.group/working-from-home-is-not-a-free-lunch/
http://par.group/the-great-retail-yield-divide/
http://par.group/small-business-the-backbone-of-australias-major-regional-shopping-centres/
About PAR Group
Real Investment Analytics (RIA), The Data App (TDA) and Y Research are partners in PAR Group, an independent research collective offering a comprehensive range of property research and analytical services. The team is experienced in economics, property research, transactional and corporate strategy; all with extensive industry involvement in both the property and finance sectors. Visit: http://par.group/ for more information.