Sluggish cities need to be reinvented amid slow return to work, says JLL report

Developers want the central business districts to regain their top status. But they will be different in future.

As vibrant as capital cities are, their CBDs need a rethink to draw back visitors, says JLL.

The nation’s central business districts must be reinvented as multipurpose destinations catering to the shifting demands for office space, altered commuting patterns and a new desire for cultural and entertainment centres.

A report by real estate agency JLL says cities are already changing but more needs to be done to help reinvigorate their once thriving centres which are running up against opposing forces.

Return-to-office rates are still lagging in many capitals but the agency says that residential buildings, including more build-to-rent towers are making a difference.

In Sydney, the re-entry rate to offices is reported as 30 per cent down on pre-pandemic levels, while re-entry rates in Perth and Brisbane are higher than in NSW or Victoria

The report argues that the longer-than-expected return to pre-pandemic levels of transit usage and footfall will mean that real estate must go beyond being mainly used as place of work.

The firm’s analysis points to value creation opportunities in cities, saying that they hold immense capacity for change due to their infrastructure, accessibility and stock of underused real estate.

JLL chief executive, Australia and New Zealand Dan Kernaghan said there was a role for real estate investors, developers and occupiers in revitalising and reinventing CBDs in the wake of the pandemic.

“This strong role that real estate can play is highlighted, including the refurbishment of office space, alternative and mixed uses for real estate assets and the sustainability opportunities for real estate portfolios,” he said.

Strategies include retrofitting and repurposing buildings and converting them into alternative uses, as well as repositioning obsolete real estate assets to suit what space users now want.

“The acceleration of build-to-rent projects in Australia over the past few years is one way to increase inner-city resident populations and assist our CBDs on their pathway towards a more mixed-use future,” Mr Kernaghan said.

JLL research shows the size of the overall national supply pipeline between 2023 and 2025 has increased dramatically with more than 20,000 units in the pipeline.

JLL chief executive, Australia and New Zealand Dan Kernaghan.

“Melbourne is currently the home of BTR in Australia, with a number of projects completing in the CBD,” Mr Kernaghan said.

“Melbourne continues to dominate the supply pipeline, with around 63 per cent of planned supply.

“Interest in Brisbane grew significantly in 2022, with the second highest share of the supply pipeline at 25 per cent.”

Reinventing CBDs would require partnerships between the private sector and governments, JLL said. Investors could take a longer-term mindset toward repositioning and diversifying their portfolios.

Governments must also provide greater flexibility to developers and investors, including through expanding tax credits to offset the cost of conversion and streamlining the planning process to reduce the lead time for delivery of new products.

Singapore has already forged partnerships with its private sector to rework key precincts, with a CBD Incentive Scheme that provides developers with 25 per cent to 30 per cent increases in developable area on assets at least 20 years old when converted from office to mixed use.

JLL head of research Andrew Ballantyne.

Melbourne’s West Side Place district, which has public spaces to break up office-dominated superblocks has also been successful in attracting footfall and investment.

JLL head of research, Australasia Andrew Ballantyne said Melbourne’s “Postcode 3000” initiative in the early 1990s had boosted the inner-city population with incentives to build housing. “A 2023 equivalent of this program could stimulate more residents living in the CBD,” he said.

The report found that almost 60 per cent of Australia’s CBD office stock is more than 30 years old reflecting the design and characteristics of an earlier generation and called out the opportunity to reinvest in this ageing stock.

JLL argues that converting uncompetitive offices to non-work functions could yield outsizes benefits, while helping to deliver much needed space to under-supplied market segments.

Originally published as Sluggish cities need to be reinvented amid slow return to work, says JLL report