Friday, January 20, 2012

What’s happening to central city services?

Questioning the future of the CBD
In an earlier posting I speculated about the future of white collar employment. This raised the question of what confidence we might have in service sector growth underpinning the future of the CBD, and incidentally how risky is investment – public and private – based on assuming that it will. 

This was construed in the comments as “giving up on the CBD” and a criticism of the proposed $2bn plus central rail link (CRL).   Well, I haven’t given up on the CBD, but I do differ in my analysis and prognosis from people who believe that a combination of coercive plans and think big projects will do the trick (see, for example, Hey, City Planners,  Remaking the CBD and Central City Dreaming). 

But the questions raised certainly go to the heart of the “business” case for the CRL.  In this blog I dig a little deeper into changes in the white collar sectors in the CBD to see if we can cast more light on the subject.

Projecting even more of more of the same
I have looked at service employment in the CBD and the rest of Auckland from February 2000 to February 2011 using Statistics New Zealand Business Statistics job count data (which does not distinguish between full- and part-time jobs).

The City Council’s economic update on the CRL projected central city employment to jump by two thirds, or 60,000 jobs, over 30 years, or 20,000 jobs a decade.  Now that’s real optimism in light of growth of under 12,000  from 2000 to 2011, and I don't see any underlying analysis supporting it.

The risk of depending on white collar growth
But this is only one of my concerns.  Changes in white collar employment raise other, more fundamental issues around the future of the urban area and especially the CBD.

White collar services (omitting hospitality and retailing for this analysis) accounted for virtually all the CBD job growth and rose from 71% in 2000 to 75% of employment there in 2011.  Commercial services accounted for two thirds of this.  So what happens in the service sector seems petty critical to the future shape of our CBD especially is we hope to counter a long-term tendency for work to decentralise (i.e., to grow faster outside the CBD than inside).
Decentralisation - international examples
A quick review of international examples suggests that greater contracting of public service delivery favours deconcentration (e.g. Washington DC); that dispersal to suburban and town-based offices contributes to decentralisation (e.g., Dublin), but that there may be a simultaneous decentralisation of some services and concentration of others (e.g., Paris).  

This is quite apart from the increasing international mobility of white collar jobs, and potential changes in functional interdependence and the need for clusters of centralised specialist services as a result of the deskilling traditional specialist occupations.

So what’s been happening in Auckland?
The 11,800 new white collar jobs in the CBD in 2011 represented 19% of Auckland’s total growth in those sectors.   Because they collectively grew faster elsewhere in Auckland (42%), though , the CBD’s share was down from 22% at the beginning of the decade.  

This tendency to decentralise varied by sector.  In Chart 1 the bars denote absolute gains (or losses) of jobs (left axis) and the points show the rates of change (right axis).  The CBD gained employment share in the sectors on the left hand side of the chart (centralising) and lost share in those on the right (decentralising). 
Chart 1: Changing Shares in White Collar Employment, the CBD and rest of Auckland, 2000-2011
Some sectors centralising
Centralisation increased in the specialised but small information and media and arts and recreation sectors.  The bigger finance and insurance sector also continued to focus on the CBD where 51% of the city’s employment in this sector is now located .  There was a slight increase in the CBD share of Auckland’s total education employment, although 87% is still located elsewhere.
While the others decentralise
But what about the fast growing – and highly significant – professional, scientific, and technical service sector?  Over a third of employees were in the CBD in 2000, but this was down to 27% in 2011.  A gain of 3,550 CBD jobs was dwarfed by 20,800 new jobs elsewhere.

And health care, medical and social services were clearly driven by suburban investment and demand.
In fact, 50% of white collar employment in the CBD in 2011 was in sectors which had grown faster outside it than in; not an especially strong foundation for projections that require annual employment gains in the area to almost double over the next three decades.

Recession can change these spatial patterns, of course, if lower order services and services directed towards individuals and households bear the brunt of a slowdown.  So we could see some re-concentration of services in the CBD in the next year or two, but it’s unlikely to be driven by high growth rates.
The CBD – a centre of specialisation?
Digging a bit deeper confirms the more specialised nature of CBD services. In the education sector  45% of tertiary jobs are located there.  This share didn’t change over the period, but the number of CBD jobs was still up by a solid 4,200 (47%).  Community and adult education jobs were up by 1,600. 

Chart 2: The Changing Share of Scientific, Professional and Technical Services in the CBD, Auckland 2000 and 2011

Scientific and market research services increased their CBD presence, but these are minnows in the wider picture (Chart 3). 

So it’s today's bigger employment sectors that show signs of decamping – especially management consulting and legal and accounting services.  In fact, 75% of employees in perhaps the most "knowledge-based" sector,  professional, scientific and technical services, were in sub-sectors that have been decentralising.

Chart 3: The Composition of Auckland''s Scientific, Professional, and Technical Service Sector 2011
So what can we take from the past?
There are two broad reasons for questioning reliance on white collar jobs to continue to underpin CBD growth.  The first is structural – a changing mix of jobs (and we haven’t seen the impact of global financial restructuring in New Zealand ... yet), including the international realignment of services suggested by my earlier posting on the white collar sector. 

The second is location preferences – with the analysis here suggesting that the CBD may not be the focus of future white collar growth that city and transport planners hope for. 
The international experience cited above suggests some reasons for this.  There may be others.

For example, people may be more concerned today with the quality of the work environment.   For many, elevator-dependent, air-conditioned, fluorescently-lit, high rise (and high cost) offices may no longer cut the mustard.  The convenience and amenities of working in the heart of the city can increasingly be replicated in suburban centres, without the congestion.

And perhaps issues of resilience, reliable infrastructure, flexibility, and proximity to the work force are important suburban attractions to the investors who employ them. 

Time to ask the hard questions
I don’t have the answers.  But I suspect that the people planning to spend billions on offering better transport to, from, and around the CBD should at least ask the hard questions, and particularly explain the grounds for expecting such a boost in job growth in the CBD and the consequences for their plans (and the city) if it does not happen.

If we cannot rely on the growth drivers of the past – and the evidence suggests that we cannot, not with any confidence at least – then we have to continue to question the very foundations of our plans. 


Mark said...

good post as always.

there is another element to this - and that is salary levels. I suspect the fall in admin/support in your graph is related to this ie that CBD has higher "value" employees, and can afford the higher renatl costs. ie the call centre / clerical processing is still moving out of the CBD.

This may also relate to proximity of "wealthy/desirable" suburbs to the CBD. I'm in Mt Eden, and we have a higher proportion working in the CBD (maybe 20%) - and a lot seem to be Lawyers/Accounatnts and Finance/Banking.

the question is - is this higher salary level likely to expand at teh same rate as the sectors? My view is that these areas are we see productivity / higher remuneration and not really numbers ie the deals just get bigger...

The other issue is the CBD definition. Over the last 10 years we've seen a big switch to waterfront west and Shortland St. ASB is a good example - 30yrs ago was Queen/Wellesley - then Albert and now Wynyard. Call centre off down Dominion Rd.

I think it pays to look at the CBD via the office classes ie Premium / A / B / C - current vacancies:
Premium 12% (13,160m²) A 7.7% (35,413m²) B 20.5% (59,900m²), C 15.6% (68,175m²), D 17.2% (20,304m²)

I suspect the job growth will only be in Premium/A and B. And in fact our CBD is now very small. The B/C/D buildings have been used as cheap foreign education factories :) - and converted to apartments. It's hard to see businesses with modern needs eg computer infrastructure ging into old C and D buildings with high fit out costs, rather than design/builf further out or fringe locations.

I guess the concern is that Council doesn't seem to have a robust review process, and is built around justifying the decision. I'm not against CRL, but the Symonds St / Newton area will not provide any real growth or economic basis to justiofy and higher development contributions to fund CRL.

Phil McDermott said...

Thanks for this Mark.

I had cause to look at Hamilton office stock in response to council policy limiting office development in Te Rapa to protect the CBD (similar to retail planning policies there and elsewhere).
Again, the high vacancies were in older, lower quality and less well-appointed buildings. Unfortunately restricting land use elsewhere in a misguided attempt to preserve the CBD risks simply subsidising landlords who cannot or will not do the necessary refurbishing.

Lifting the profile and traffic (pedestrian and vehicle) in the CBD might galvanise them, or at least see them sell, so the standard of investment improves eventually. Hence council investment might usefully be geared to promoting better private investment.

But that is a long-term process given intrusion of low rent uses into ageing commercial facilities in the meantime. That's not altogether a bad thing if low rent uses breathe new life and colour into the CBD - that's how the market works. Look at the revitalisation of our more successful strip shopping centres despite their earlier mauling by malls.

You identify a shift in values and activities within the CBD in response to public investment in places like the Wynyard Quarter. This looks like encompassing the entire Western Reclamation. But it’s got to be well-informed public investment, sensitive to the quality of area and activity and how the private sector might respond. We seem to be doing okay in Auckland on that score at present - but risk dissipating it if we spread the public investment too thinly or simply take a lead from overseas cities.

Your other point is important. The CBD's (and Auckland's) so-called productivity premium in large part reflects distinctive forms of employment - in terms of sectors, vocations, and institutional categories (head offices, management functions, etc). One challenge we face is keeping the CBD a viable destination for high value activities and high value individuals. Your comments on the quality of inner city suburbs relate to this. I'm not sure that medium density housing (of indifferent quality), high density high rise offices, or even the CRL will help meet this critical challenge, though.

Mark said...

A couple quick points

- on older b/c/d buildings - Council really need to understand the economics before finalising the plan - probably down to site by site. eg they will get almost no redevlopment around a CRL station in Albert St/Wellesley. due either to heritage constraints, and existing buildings such as ASB HO one.

there and elsewhere in the CBD, I think the issue is more of "recycling" rather than refurbishment. When first CBD strategy was done, the market was already indicating back in 2003 the shift to modern large floor plate offices. Since then this has been proven correct eg Telecom/Vodafone/Air New Zealand and now ASB. This was due to modern open plan /flat management structures. these corporates along with more traditional law and accounting firms are the "high value" uses. They are now all down at the waterfront.

So uptown, they will either be very cheap offices, or recycled to education or apartments. In my view that is the CBD's biggest risk - with 20%+ vacancies, with new apartment sites to the west that don't require expensive building refurb, will these remain very low value use or stay vacant. The risk to the CRL is that this high risk area is where 2 stations will be.

So I think your point re the risk of "high value" destinations is very true, and it's hard to see a fix....

The other element is the justification for public spend - if you can't achieve the benefits, then you can't justify the expenditure.