The pothole in Melbourne’s roadmap for recovery

Around early September, the Victorian Government released its “Coronavirus (COVID-19) reopening roadmap”, mapping “Metropolitan Melbourne’s pathway to ‘COVID Normal’ for work, education and living”.

At AJ Financial Planning we were naturally interested in the roadmap from an economic standpoint, to see what impacts it might have on our local economy. As we worked through this information, there was some sense of puzzlement: there seemed to be a lack of understanding by government of the key demand drivers of business, particularly around Melbourne’s CBD.

Our key concern was that “open for business” does not necessarily mean you will still have a business or, more precisely, revenue and profit. Let me explain.

A key area of interest was the category “office and professional services”. This category has been identified by health authorities as one where working from home for extended periods is possible and desirable, to achieve their lockdown objectives.

However, the final phase of the roadmap – COVID Normal – when everything can reopen and people can return to work as ‘normal’, won’t come into play until there “are no new cases for 28 days and no active cases (state-wide) and no outbreaks of concern in other states and territories.”

Now, there are doubts if this can be achieved but assuming it can, then let’s go a little further.

The other category of interest is schooling for Years 3–10. These students will also not return to school until COVID Normal is achieved.

So, assuming we do achieve COVID Normal, what do these two categories mean for the wider economy, as both are critically linked with a return to work.

In the roadmap released by the government, the “Last Step”, which is actually the second-last step in the order of events (seems the numbers people were not really involved in this plan), is set to commence on 23 November 2020. 

If we look at each step on the current forecast and extrapolate, it looks like the Normal phase for both these sectors will be sometime around 23 December.

Hmmm, I guess the health authorities thought they were rather clever, as this means kids will be on school holidays and workers will be about to head off on their summer break. In effect, they will achieve another month of lockdown measures without having to articulate it. It seems some bright spark forgot about the economic reality. 

So why does this matter?

If you stand with your back to Flinders Street train station, gaze along Swanston Street and look skywards, you will notice that the majority of occupants of the CBD are office workers. The roadmap seems to have missed the blindingly obvious.

So while retail, hospitality and all other services in Melbourne CBD can open up, in reality they will be operating at very low levels of capacity due to the missing key ingredient: customers, the majority of which are office workers!

Government has also made the assumption that once everything goes back to Normal, workers will return to their offices like they have in all the other states. But will they?

Let me digress to highlight a point.

I often travel to New Zealand and have spent time in Christchurch. Back in 2011, this city suffered a devastating earthquake, which essentially shut down the whole CBD. While it was slowly rebuilt, the local suburbs boomed as office workers had to work from home or move to other locations. Nearly a decade later, despite the rebuild Christchurch is still pretty much a ghost town.

As structural changes take place, moving people back into the city can often be harder than one might think after long lockout periods.

The office worker here in Melbourne has been working from home for six months now, and by the time we reach the Normal step, it will be closer to nine–10 months. Unlike other cities, it has had a second wave that has forced strong structural changes. These have required businesses to pivot to allow working from home to take place, potentially indefinitely if necessary.

Abroad, the big cities of the world such as London and New York are struggling to get their “office workers” back into the city centres and they are in fact pleading to trying to encourage workers to return to their office settings. Most office workers are happy to remain in the suburbs, not missing the daily struggle and cost of the office commute.

London is open, but only 15% or so of workers are reported to be returning to the office and other key financial centres are reporting similar types of low numbers.

There are varying reports that people will return to the office setting around 20–70% of their work time. However, the longer the lockdown goes on, the less essential office space will become, particularly as organisations realise the true cost of having large, expensive office space.

Convincing office workers, who will be keen to avoid long commutes in the searing mid-January heat of Melbourne, to return to the CBD will present a tremendous challenge.

Now, the Victorian Government can throw money at outdoor seating, rapid permit processing and other short-sighted ideas; the economic reality is that if you remove the customer from the setting, the business will fail. Just having the doors open does not mean you will turn a profit.

As we move towards the end of January, it will be interesting to watch the capacity of the city, and if office workers become an endangered species in Melbourne CBD.