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Employment

Dec 6, 2012

Why is Sydney's CBD growing slower than Melbourne's?

Jobs grew faster in Melbourne's centre than in Sydney's over 2006 to 2011. It might be that Melbourne makes it a lot easier for firms to locate in and near the CBD.

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Change in mode share for journeys to work in Sydney CBD, 2006 - 2011

I was fascinated by the many and varied ways the media reported this week’s release of the latest edition of the Commonwealths’ annual report, State of Australian Cities 2012.

My first sighting was The Age, which ran its report under the headline Jobs shift from suburbs to CBD.

That’s big news as it seems to confirm the theory, pushed hard by the report, that the knowledge-driven economy demands higher and higher levels of agglomeration (i.e. density). The story suggests the CBD is accordingly consolidating its position as the dominant business centre.

However despite its importance, no other paper picked up on the theme of changing employment geography. The West Australian told its readers the report says sea-levels in Perth are rising at three times the Global Average.

The Courier Mail reported Anthony Albanese wants Brisbanites to copy “scooter-mad Italy” and get on a Vespa. The Brisbane Times highlighted the “push for a taller, denser city”.

The Sydney Morning Herald ran with the headline that Sydney has the nation’s least satisfied commuters.

When I looked at some new Census numbers put together by the City of Sydney, it became clear why the Sydney Morning Herald, at least, didn’t run with the jobs theme.

The data shows jobs grew by a vigorous 8.9% in the Sydney CBD (Central Sydney) between 2006 and 2011. But they grew even more vigorously – by 10.4% – across the entire metropolitan area.

There was a substantial and welcome improvement in public transport’s mode share (see exhibit), but the CBDs share of all the jobs in the metropolitan region remained static at 12% over the five years.

I dug around in the Census data myself and compared the numbers for the larger area of the municipality of Sydney. This showed jobs grew 11% over the intercensal period.

That’s stronger growth than at the metro level but not enough to suggest a major re-balancing in the economic geography of Sydney. It’s no wonder the Sydney Morning Herald ran with a different theme.

Sydney’s lacklustre performance is at odds with the State of Cities report’s stress on the value of agglomeration economies. It is after all Australia’s global city and has the lion’s share of Asia-Pacific regional headquarters.

It’s also the nation’s leading financial centre, ranking fifteenth out of 77 cities on the Global Financial Centres Index for 2012. That puts it well ahead of other major world cities, like Paris, Shanghai, Beijing, Vienna, Amsterdam and Munich.

If any city should be reflecting business’s demand for greater density in the centre it ought to be Sydney.

Melbourne tells a very different story to Sydney, though. Jobs grew by a spectacular 21% between 2006 and 2011 in the municipality of Melbourne.

I couldn’t find a comparable areal unit for 2006 and 2011 on which to compare growth at a metropolitan level, but estimates by the Department of Education, Employment and Workplace Relations suggest it was around 13% over the five year period.

Thus the centre clearly out-paced the rest of the metro area. That level of jobs growth in the centre was expected by most informed observers.

It’s consistent with the view that the rapid growth in public transport patronage in Melbourne in recent years – faster than in Sydney – is largely due to job growth.

While Melbourne is an important financial centre in its own right, even in world terms, it’s not in the same league as Sydney. Melbourne’s markedly higher growth suggests there might be a prosaic explanation for the difference between the two cities.

Perhaps much of it is down to the greater “elasticity” of Melbourne’s CBD. The ability of businesses to expand into large areas like Docklands and Southbank has moderated CBD prices and permitted more businesses to locate centrally.

I’ve noted before that large firms like NAB were able to integrate “backoffice” functions with headquarters functions in Docklands. In most other large cities, those sorts of routine functions are packed-off to lower cost locations like the suburbs or regional centres.

Sydney’s potential equivalent of Docklands is Barangaroo. It’s expected to accommodate around 15,000 jobs when built out, equivalent to three quarters of the jobs growth in the CBD over the last five years.

I’ve thought for some time that Barangaroo might be on course to emulate some of the mistakes of Docklands. There’s a miraculous opportunity for Australia’s global city to create something really great by the harbour, but the visions articulated so far are mundane.

But now I also wonder if the city mothers and fathers are getting as much value from Barangaroo – in terms of space for Sydney’s commercial heart to grow – as they should. That sort of opportunity doesn’t come along all that often in a water-locked CBD.

Of course there might be other reasons for the difference between the two cities. It might simply be that redevelopment is more difficult in Sydney’s CBD – there could be more planning obstacles, for good reasons or poor ones.

Maybe the more highly developed network of suburban activity centres in Sydney gives firms a viable alternative to the CBD. Or perhaps it’s simply that the GFC hit the finance sector and hence Sydney’s CBD especially hard.

On the other hand, perhaps the net value that theorists attribute to density in increasing productivity (it’s increasingly incorporated in BCAs for new transport projects) is over-stated, at least for some sectors.

When firms consider the benefits of agglomeration, they also have to consider the costs. Melbourne’s centre appears to offer its firms a more attractive option at the moment than Sydney’s.

Sydney might think further about the scope to increase economic activity in the centre. Melbourne might think about whether its centre is under-mining its suburban job centres strategy .

Alan Davies — Editor of The Urbanist

Alan Davies

Editor of The Urbanist

The Urbanist is edited by Dr Alan Davies, a principal of Melbourne-based economic and planning consultancy, Pollard Davies Consulting.

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