Digital connection is transforming work and our global cities
Tectonic shifts at workplaces and in our cities are changing the way we live, work and play.
Amid a fading of the big inflation and as interest rates and public spending find their new resting pulses, there are tectonic shifts at workplaces and in cities.
The physical city is being remade and restocked which, at heart, is a structural story about the ongoing repricing of commercial property and transport infrastructure.
But the workplace is changing as well, underpinned by the rewriting of pay agreements for knowledge workers and public servants, who apparently now call the shots.
“Workers have the upper hand in many industries and occupations,” one seasoned industry observer tells Inquirer. “But for many business activities you need people working together in the same place, building teamwork and culture, sharing knowledge, as well as success and failures, learning from those experiences.”
The consensus is work from home is here to stay but we’re still in the early stages of discovering what these evolving forms mean for wages, innovation and productivity, as well as the future shape of cities.
Urban theorists are now talking about the rise of the networked “Meta City”, where clustering combines with digital connectivity. So-called global superstar hubs New York and London are at the apex of this new order of corporate location, while Sydney, Melbourne and 15 other third-tier entities are designated as “significant global hubs” based on flows of skilled professional talent across global cities.
Writing in the Harvard Business Review in November last year, Richard Florida, who brought us “the rise of the creative class” two decades ago, argues that rather than being eclipsed because of the pandemic’s retreat to suburbia and small towns, expensive global cities such as London and New York “are being reinvented in new and more powerful ways”.
Along with three colleagues, Florida argues “the notion of place has become increasingly paradoxical”. With the rise of digital technology and remote work, the places where we work and live have essentially become unbundled. “Today, for the first time in history, a sizeable fraction of the workforce can participate in the economic life of a city without actually living there,” the authors write.
According to the Australian Bureau of Statistics, working from home remains popular, with 37 per cent of Australians regularly working remotely. But its incidence is slipping. Before the pandemic, the percentage of employees working from home regularly had been rising by around a percentage point every two years. It jumped from around 32 per cent in 2019 to 40 per cent in 2021 during the lockdowns due to Covid’s Delta variant. The ABS survey last August found 60 per cent of managers and professionals were working from home regularly, compared with 22 per cent across other occupations.
With many businesses now imposing mandatory in-office days for staff, a more recent reading by National Australia Bank shows the amount of time spent working from home is inching down.
It found time spent working from home fell to 32 per cent in the December quarter, down from 38 per cent when it began tracking it two years ago. “Workers still spend less time working from home than they would like to,” the NAB survey says. “Bridging the gap between what staff want and what businesses are seeking will continue (to) present challenges in (the) near future.”
Our leading cities are still well below their pre-pandemic peaks for commuting and attending the office. For instance, in early 2020, there were typically 400,000 daily public transport trips into the Sydney CBD. That’s settled at around 300,000 inbound journeys by train, bus, ferry, light rail and metro. On Fridays, office attendance plummets by 20-30 percentage points in Sydney and Melbourne.
CBD property markets are in a lull. New supply flooded markets in 2021 and 2022 as construction work continued during the pandemic. Vendors in Sydney and Melbourne have withdrawn properties as bids came in well below book value. These buildings are lumpy assets, often owned by super funds, which are winding down their holdings.
According to research from Dexus, office transaction volumes were the lowest in a decade, “due in part to significant declines in asset valuations and hesitancy among investors given high levels of vacancy,” the manager of property and infrastructure portfolios says.
The Property Council says the national vacancy rate in CBDs is 13.5 per cent, a level not seen since the recession of the early 1990s when it was on the way to a peak of 21 per cent (and on the way down later that decade). Melbourne’s CBD vacancy rate was 16.4 per cent, according to the council’s January Office Report, while Adelaide topped the nation’s charts at 19.3 per cent.
Property Council chief executive Mike Zorbas says the market is showing a preference for high-quality spaces. “There is a clear divergence between older, low-quality stock and the new premium office buildings rejuvenating our cities,” Zorbas says. “Some two-thirds of all office vacancy sits in one-fifth of buildings. Flight to quality aside, it is crucial for governments and public service leaders in particular to champion the significance of our CBDs and the ecosystems of small businesses they support.
“Face-to-face interactions remain something almost all people benefit from in a social and a work sense, and we are starting to see that routinely recognised as complementary to the welcome dividends of flexible working.”
More CBD workers are back in the office, with attendance peaking on Tuesday, Wednesday and Thursday. According to commercial realtor CBRE, every major CBD market in Australia has experienced a rise in office attendance across the 12 months to September last year.
“In particular, the smaller markets of Perth and Adelaide have rebounded impressively, nearing pre-pandemic levels on peak days,” CBRE’s Australian CBD Return to Office Indicator report says. “This resurgence can be attributed to few lockdowns during the pandemic, which meant that work from home in these markets became less structural.”
As well, CBRE says average attendance rates in Sydney and Brisbane are robust, hovering around 75 per cent. While Melbourne has recorded a similar improvement in office occupancy to the rest of the country, it is coming off a lower base with occupancy at 56 per cent.
The return of international tourism has helped drive increased CBD foot traffic, which is now approaching pre-pandemic trends.
According to the Department of Home Affairs, there were more than 770,000 visitors and working holiday-makers here on New Year’s Eve, equal to the number four years earlier; the number of foreign students and graduates here on temporary visas on that night, when many return home over the summer, was 160,000 higher than at the end of December 2019.
But, as Wednesday’s national accounts show, consumers are hurting. With rising costs for mortgages and essentials such as rent, food, insurance and vehicle fuel, discretionary spending has slumped.
But CBRE sees pockets of retail expansion for shop owners this year, such as beauty and bubble tea, “as consumers focus their discretionary spend on looking good and feeling good”.
According to Deloitte Access Economics, a post-pandemic red-hot jobs market has turned, with employers reportedly not as worried as they were a year ago about securing and retaining talent. Growth in white-collar jobs around the nation is expected to be 128,600 (or 2.5 per cent higher) this financial year but is expected to ease to 78,200 in 2024-25.
“Return-to-office mandates are gaining momentum within Australia, with some organisations considering tying remuneration and career advancement opportunities to those that return to the office more frequently,” Deloitte partner and author of its employment forecasts David Rumbens says. “However, from an employee perspective, flexible working arrangements are still highly valued, with many willing to accept a pay cut in exchange for remote work flexibility.”
Rumbens cites recent US research that has found firms with mandatory return to office plans do not experience notable changes in profitability and productivity, and overall employee satisfaction is shown to decline in these organisations.
Iron out the Covid fits and starts, as well as the migration rebound that has supercharged the working-age population, and Australia’s productivity, or output per hour worked, has been stagnant since 2017.
Academic research on the effects on wages and productivity from the big shift to remote and hybrid work remains hotly contested. Standard economic models suggest that when jobs can be located anywhere in the world, increased labour supply reduces real wages. The productivity of remote work is a complex issue, with perceptions differing greatly between workers and managers.
But there is a lot of evidence on the clustering of workers and firms, according to a recent working paper by Jose Maria Barrero, Nicholas Bloom and Steven J. Davis. “When cities successfully bring people together, positive spillovers abound,” they write in The Evolution of Work from Home, published by the University of Chicago’s Becker Friedman Institute for Economics.
“People interact, learn from each other and foster entrepreneurship, leading to greater productivity within the city.”
The authors say workers employed in occupations involving a significant amount of problem solving tend to experience lower performance when working remotely. Such employees network with fewer individuals and business units, both inside and outside the firm.
“Our findings indicate that the technology of remote work has been improving steadily over the past decades while remaining less productive than in-person work on average across occupations,” they write.
The authors say communications, performance evaluations and management practices must adapt to new working arrangements if they are to work well.
“The adaptation process itself involves a good deal of trial and error and learning-by-doing,” they say. “Thus, the productivity effects of work from home are likely to unfold over months or years.”
Committee for Economic Development of Australia chief executive Melinda Cilento says in the tussle over metrics, people are gravitating to evidence that suits their prior view.
Some of the industrial rhetoric has been over the top.
But Cilento says there are clear lines: working from home and hybrid work is here to stay. “It’s a dynamic space,” she tells Inquirer. “We’ve seen real benefits in higher workforce participation by those who were previously held back, so that’s a big tick for diversity and inclusion.”
Cilento says in this evolving workplace, productivity growth will depend on how well employers manage these new arrangements to maintain engagement and performance, particularly of younger workers who may not have the space or equipment at home that more senior employees have.
She points to the importance of senior staff mentoring newer workers, while also raising the value for all employees of being in the office through co-ordination of attendance, to maximise the benefits of collaboration.
As well, the CEDA chief says the positive spillovers in cities have been in evidence for hundreds, if not thousands, of years.
“This is important for our overall prosperity,” she says.
“Vibrant, dynamic cities create enormous opportunities and value. Smart businesses are adapting to the new conditions.”
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