John Durie: No people in the CBD means no business for SMEs

The central business districts in Sydney and Melbourne took another step to re-opening this week as more COVID restrictions were lifted, but small businesses hoping for a quick rebound may be disappointed.

For the economy as a whole, the return to the CBD is a mixed blessing because instead of punters buying coffee from their local coffee shop, they’ll will get it in the city.

NAB figures show spending outside the central business districts increased nationwide by 26% over the last two years, but it was flat in the CBDs. 

A boost to one takes from the other, but the good news is people tend to spend more when they are working in the city.

Some, like NAB’s Ross McEwan, have waved the flag hard for the return to the city, and of course, CBD-based businesses welcome his rallying cry.

“But let’s just say it’s $10, there’s $100,000 of income that goes into small businesses underneath my building. And that’s what we need, desperately need – and then that has the effect of they’ll employ somebody. And on we go. We get this economy moving again, which we desperately need, particularly for small businesses. That’s the multiplying effect,” he says.

According to McEwan, from January 2020 to 2022 consumer spending in the Melbourne CBD fell six per cent, against a national increase of 15% increase.

The difference, he said, is $35 million a month to CBD small business. But what he didn’t say is that may come from someone else’s pocket

The trickle of international visitors is also helping boost CBD life.

Regional businesses can pick up work around the margins but if you are based in the CBD, no people means no business.

While there were more signs of CBD life this week, most big accountancy firms and banks are taking a flexible stance to the return to work, with three days in the office a week a rule of thumb.

Workers will be free to do what they like, depending on what deals are reached with their divisional bosses     

Economist Warren Hogan thinks it will take a couple of years before CBDs are back to pre-COVID levels .

A boost to CBD spending is not the same as an overall increase, but it helps boost confidence.

The predicted post-COVID insolvency increase was saved thanks to government stimulus but as the pandemic drags on those numbers are now increasing.

As the economy returns to some sort of normal Hogan believes the key hurdle for small business will be higher labour costs.

Workers have increased mobility, and are prepared to make the move, says Hogan, so while demand continues to outstrip supply, labour costs increase.

On Monday, the latest ABS figures showed wages and salaries were up 1.9 per cent in the December quarter and 5.5 per cent for the year, which compared to the 3.3 per cent growth for the prior year .

There are other signs of life too, with business credit running at a 13-year high of nine per cent, but this is from a low base.

While Australia’s geopolitical position is a Russian-imposed mess, the latest ABS figures show the economy is taking a step back to pre-COVID levels.