Our economy and the way we live are rapidly changing, we can already see the forces that will shape the cities of the future.
Eventually the CBDs will be a ghetto.
That’s my prediction. You can hold me to it. If it hasn’t happened in the next 120 years, I’ll buy you a case of Penfold Grange.
Now, I don’t know for sure, but it’s not hard to imagine a scenario where our CBDs are hollowed out, and left as nothing but unattractive high-rise housing (though the number of phone and internet connections is fantastic.)
The key drivers of this change are going to be dematerialisation and demonetisation.
These are two forces of modern business identified by Peter Diamandis. The more I see of his work the more I like it. Buy his book. Trust me, you wont be disappointed.
Anyway, dematerialisation and demonetisation are two gargantuan monsters unleashed on the business world by the digital age. Businesses that can’t adapt will die. Many have already.
Once an industry goes digital, dematerialisation and demonetisation follow quickly on its heels.
Think of CDs.
Online music sales pretty much killed the CD store as we knew it. I’m kind of amazed every time I see one. Like Video stores. But both are getting harder to come by.
The rise of online retail meant that you no longer had to physically purchase your CD. CDs are generic units, so there’s no need to inspect it before you buy it. There’s no need to even get off your couch.
But not only that, the music itself went digital, and CDs are pretty much redundant. I don’t even have a CD drive in my house. I’m not just talking about CD players, I’m talking about a CD drive. All my computers are now solid state – no moving parts.
(If someone gives me a CD, it’s actually a hassle. I have to wait til someone with an old laptop comes over, and then rip it to their computer, transfer it over… yada yada yada. I don’t have time for that. I’m a busy man.)
So now, not only did you not have to go into a store to buy a CD, you didn’t actually need a CD.
Music had dematerialised. And that killed the CD store concept.
(Thankfully Richard Branson had already got into airlines and space travel).
But it doesn’t stop there. After dematerialisation comes demonetisation.
And for music it comes with online radio stations like Spotify and Last FM.
Once average bandwidth increased to the kinds of speeds that made downloading music trivial, Spotify and co built huge libraries of pretty much every song ever recorded…
… and offered it to you for free.
There are subscription models, but if you’re willing to put up with regular advertising, you don’t have to pay a thing.
As long as you have the bandwidth and the download limit, you can listen to all the music you want for nothing.
Music had been demonetised. And it’s another nail in the coffin of the music recording industry.
(Hipster bands across Melbourne are crying into their lattes, but I don’t think many people will shed a tear for them. I’ve heard some of them talk about organising a consumer boycott, but if consumers didn’t care about pregnant ladies being tortured in Asian sweatshops making shoes, they’re not going to give a toss about rich white musos missing out on their disco-biscuits.)
In many ways, music has been the canary in the coal mine, but every industry has to deal with the forces of dematerialisation and demonetisation in some way.
Even physical industries will be disrupted by it. What happens when people have 3D printers in their homes? I actually don’t think that’s likely. I think it’s more likely that there will be 3D printing facilities located in remote areas. You’ll log on, submit your print to the queue, and wait for their drones to air-deliver it to you when it’s done.
Drone–delivery is leaping towards being a commercial reality. It still sounds far-fetched but give it 5 years. And that might not sound like much, but think how long it’s taken for touch screens to go from unheard of to ubiquitous.
And think about what happens to our roads if 50% of our transport needs are taken care of by driverless drones.
So how will all this reshape our cities?
Well, I think the first stage is that retail business will flee the CBD. Department stores are already in a death spiral. Parking is a nightmare, and most people just use you to trial things they’re already planning to buy from Hong Kong. Why bother?
Retail will give up on the CBD, leaving only cafes and 7-11s there to service office workers.
But how long are offices going to last? Do you really need everyone in your organisation in the same place? I mean if you worked in a company of 500 people, how many of those people do you actually interact with, let alone need to see face-to-face?
It might be a nice ideal, but cost pressures will eventually cause big org’s to disintegrate into small teams in cheaper locations, or networks of work-from-homers. They’ll probably leave ‘shopfronts’ in the CBD so people can find them, but they’ll only occupy a fraction of the real estate they do now.
So what have you got left? Retails gone, offices are gone. All that’s left is residential. But almost the only drawcard of living in the CBD is being close to work. But if your work dematerialises, what’s the point?
Why not move out to suburbs where you’ve got a bit of space?
Demand (and prices in relative terms) for CBD real estate will plummet.
And voila. Our CBDs are the ghettos of the future.
Does this make sense?
What other forces do you see shaping the cities of the future?
Local Sports History says
Jon, it was only several days ago you were talking up James Dawson’s commercial property webinar & a good return of 7 – 10 % cash-flow, but now your saying the CBD will potentially be a ghost town in the future. I’m a little confused ?
Jon Giaan says
Just a question of timing. My lifestyle choices don’t give me the luxury of investing over 120 yr horizons.
tezza says
If you no longer need to go to work in an office then why would you live in a big city at all? Who needs to pay $1m for a shitty little box in the suburbs of a dead city when you can get a nicer house on an acre of land near a regional town for a quarter of the price? Hope you don’t have anything invested in major city real estate if your prediction comes true! Of course people have been predicting the end of offices for at least 20 years now and it still seems a long way off for most people.
Pippi says
Yeah I think you have a point Jon, If we went from Records, To CDs, To I- Pods & online Music, also from Film Cameras, to Digital photography & Online Media, then its Highly likely that in the next Century, Cities will be a thing of the past. Empty ghettos full of Rampaging Zombies & Nomad Vagabond tribes.Go the Matrix, Mad Max & Waking the Dead.Cant wait for the System to crumble, cause its not really working this current Model.People stacked 100s of stories high Crammed in like Sardines, attached to computers, Breathing Air conditioned Air, Drinking Filtered Pure water & Eating Microwaved food.Nature Might Rebel.Think the jokes on us.
David McCarroll says
First of all, cities are about communities, not necessarily about business needs only. Secondly, regardless of the speed of internet, email, SMS etcetera, an awful lot of business has to be conducted face to face. Creative professions in particular rely heavily upon personal communication and interaction between the people involved. Thirdly virtual meetings will never replace video conferences/Skype/WebEx/Whatever. Fourthly there are a lot of companies that simply believe that effective business relies on (for want of a better term) face time – otherwise all you end up with is bunkerisation, not creative, evolving and effective business technique.
There was a book written probably thirty years ago debating how computers, and the ability for technology to allow people to work anywhere, were going to lay waste to cities everywhere, that CBD rents would plummet, that there would be a great diaspora from the no longer viable urban megalopoli that we inhabit. The surprise finding of course was that companies that bucked the emerging trend and chose to centralize, rather than aerosolize did far, far better.
Regardless of how you look at it, human beings are social creatures, most of us need interaction on a regular basis, and of that most of us, although we might find it difficult to admit, a very large part of that socialization takes place at work. Cities are not going to die. Tezza, the fact of the matter is that the demand for apartments outstripped the demand for the suburban house in Sydney probably fifteen years ago, and without having the data in front of me I’d speculate that the proportion is shifting increasingly towards the apartment still. Most people simply do not want a nice acre in the middle of nowhere – they want the buzz of being around other people, they want them latte sipping inner city cafes, access to entertainment, services, proximity to good education etc etc. These are all reasons that your shitty little boxes rise in value but rural property if anything is dropping.
The city, particularly in the more European, urban context (and in the USA New York/Chicago/Boston context) is not going anywhere. It’s also worth bearing in mind that in terms of infrastructure/resource consumption etc, cities are far more sustainable than suburbs – all those roads, services reticulation, NBN etc cost an awful lot of money when you have to provide them between multitudes of quarter acre blocks.
Now onto an other point. Jon – your rich, inner city, latte sipping hipster musicians belong to a profession that has an average annual income well under $20 000 – they are more likely to be living off 99 cent noodles than sitting in a South Melbourne café downing restrettos by the dozen – get your facts straight please – that is not hard to find out by very minimal digging.
So what you say, who cares about them whingeing, complaining, lefty musos. Bear in mind that civilisations are remembered by the arts they leave behind, as one historian pointed out (paraphrasing), not by their skills in double line accounting.
Spotify, by the way, is almost indistinguishable from radio in terms of content distributed – the main difference is that for some reason they seem to be able to avoid paying even the correct scale royalties due to the performers, and frankly they are hardly high to start off with.
Giuseppe says
Living in the city is more than about just one’s job. It’s about partaking in cultural events like concerts, art galleries, museums, great restaurants, live music & theatre, etc. Cities are provide excellent educational opportunities. I have several properties in inner Melbourne and they are going gangbusters. I would never invest in regional areas and am very wary of “experts” selling you their advice. Sometimes I wonder just how many properties it takes to be an “expert”.
Eileen says
To be fair Giuseppe, we live 35 mins outside of Sydney CBD and go to live theatres, great restaurants etc away from the CBD. As long as Sydney has the views, it will never be a ghetto or ghost town! I have invested outside of the CBD as the value is better and tenants don’t demand lower rents due to over supply, (as I’ve heard happens in the city). You need to know the area you invest in well, wherever it is. Some regional properties are $1m price now.I think you become an expert after you have a decade of ownership in numerous properties
Giuseppe says
I hear you, Eileen. For me regional means buying in small country towns. 35 minutes out of Sydney is still Sydney to me… I meant like 3-4 hours out of cities. Anyway, I’ve been investing for 18 years and I’m still learning stuff everyday. What has worked for me has been inner city.
Traveller says
Right on the nail as usual Jon 🙂 It’s already happening – it’s just that people don’t open their eyes and see what’s happening.
I used to work for a large global organisation. When they closed their office in Perth 12 years ago I bought a house on 60 acres near a small regional town for half the price (Perth property is not so expensive as Sydney!) but still within an hour or so drive to the city. I then either worked from home or was paid to work oversea and see and experience living all over the world. Now I have my own business and still work from home. My brother has a similar style of work/living in the north of Scotland.
The only snag is communications.
Traveller says
You see what I mean – I just jumped out of the text box to copy a quote from Jon and the web site lost my connection and wouldn’t let me back in the text box. Only option was to send!!!
The only snag is communications.
Jon says “As long as you have the bandwidth and the download limit…..”. This is absolutely necessary if you’re going to work from home. For that you need a good national communications policy. The NBN was supposed to be that, but now it has been crippled as I will explain below.
I have direct line of site to the mobile tower about 15km away and until recently I had excellent 3G coverage, but now the mobile network is heavily congested. As soon as the kids come out of school they turn on their pads and mobiles and the network dies. Any serious bandwidth use (Seminars [sorry Jon], YouTube, Skype and computer upgrades) can only be done at night. Even then it sometimes dies!
The change of policy on the NBN is main culprit. The operators are relying on the NBN to cover the traffic increase and are avoiding upgrading their country network. However the NBN will now never reach me. They are putting oodles of fibre in the cities – which already have fairly decent broadband networks and just needed an upgrade. In country TOWNS they are putting wireless NBN – but with low towers the service hardly gets outside the town boundary. Again ADSL is already in the town but needed upgrading.
Guess what! The NBN does not carry mobile traffic. The kids still turn on their phones and pads and kill the mobile network and my “broadband” link. And I’m not aware of any upgrade plans.
Telstra kindly put two fibres cables through my land (they don’t need my permission!) but I can’t access them as they go between exchanges. The local exchange is an ancient little container, 1 km down the road, that is incapable of giving a DSL service – it can’t even give Call Number Identification. Only a slow modem service is available, a 20 year old service, (but that may be faster than the 3G network now!). The exchange needs throwing away and replacing. But that’s unlikely to happen. The NBN is the excuse not to spend the money.
The national broadband network is no longer national. NBN only reaches those places that already have a reasonable broadband service. Now it is unlikely to ever reach the places that really need it.
My “broadband” service is now much worse than it was a few years ago with little hope of ever getting any better. End of personal gripe……
Ahtee Chia says
All that may be true. The linchpin will be community as David McCarroll says, however in the long term CBDs are not the best environment for families as is evidenced by the weekend exodus to the countryside because people just need to escape the concrete jungle to soak up some nature. The suburbs are no better as places for community interaction. The car is king in the cities as well as the suburbs. Parents will not let their children out the front gate in fear for their safety.
What will happen is that the CBDs and the suburbs will evolve into community “villages” each with its own local amenities and a collection of communities will have cultural facilities and so on up the scale commensurate with the scale of patronage required. The primary planning criteria will not be land use separation but the needs of community for families, children, singles, shared houses of university students, the elderly, in short suitable for a mix of age groups and family make ups.
In such a scenario of “villages” of communities all human settlements from cities to rural towns will be transformed just as the inner urban ring of abandoned wool-sheds and warehouses of Sydney was transformed into shops, galleries, and housing. They may be wastelands for a while and human ingenuity will find opportunities for new uses more suitable for the new needs of the time.
Tony Avsec says
If you’ve got bandwidth, and within an hours drive of a major airport to attend the ocasional meeting, you can work anywhere – just came back from NZ catching up with a colleague who still works from his 5 acre farm 2 1/2 hrs north of Auckland on billion dollar projects for our mutlinational property Co all over the world without leaving his farm. He just finished working on a succcessful $2B bid in Singapore, and helped me on a major hospital project in Toronto Canada 3 yrs ago. He’s living the dream for 10 yrs now
juliet says
awesome views just love your blogs
Paddy says
Within the article and the comments there is certainly food for thought and some insightful analysis. While the force of Jon’s economic arguments is telling, comments concerning other factors, especially community, carry a lot of weight. From a very different perspective, I teach English in a single-gender girls’ school – the demographic may be significant hence the admission. They are very tech savvy on the whole. With the educational demand to drive ICT across the curriculum I make forays into the arena. Every time I am met with resistance. The students do not want the study of English to be particularly tech. Oh, some (surprisingly few) are happy with e-readers and they generally like to type their responses and notes. (That’s a whole other problem with decreasing fine-motor skills and slower writing speeds, but don’t get me started.) But most want paper and, more importantly, face-to-face communication. My point being, if you are going to argue that the CBD is going to die rather than continue to be reinvigorated through community building, then you need to account for the trend in more than economic terms.
Paul says
Not exactly rocket science to work this hypothesis out. Anyone who has been overseas to the US will have encountered cities where there has not been a CBD Dowtown for some years. Dallas for example over a decade. The City of London, about a mile square has is just a high rise financial district, but they still have Oxford Street and the like. Country towns in Australia have for decades been losing out to business evolution around them. Whether CBD’s become ghettos of the future, I doubt. Us humans will develop them to a have a different role.
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