The CBD is Dead

Sir Robert Jones is the first to spell out the issues for the Christchurch CDB in words that politicians fear to use.

It is time to face the reality that the Christchurch central business district (CBD) cannot be rebuilt.

Cities have many components, such as libraries, art galleries, council offices, theatres, halls and other public facilities. These comprise the indulgent element, paid for from the public purse. But they cannot exist in isolation and alone constitute a city. Rather, they emanate from the steady organic growth of a city’s commercial activities in the form of shops and offices.

Prior to the earthquakes, Christchurch’s CBD retail heart was already in trouble, with empty shops abounding, while those remaining lived off the office workers, now gone. This was a direct consequence of the construction of large suburban shopping centres, which killed off the CBD as a retail location, just as has occurred in many other cities throughout the Western World. Examples in New Zealand include Lower Hutt and now, increasingly, Hamilton.

It would be possible to build a new, smaller Christchurch CBD with high-rise office buildings to support a smaller retail base, if the office buildings were confined to a tight area. But while that is physically possible, it is absolutely not financially feasible for several reasons.

The CBD is not financially feasible and Sir Robert explains why:

First, because these buildings would be new they would require rentals, on my estimation, at least 400 per cent higher than the pre-earthquake price level. Because of the earthquake factor, engineering costs would be significantly greater than hitherto, as would insurance costs, and on top of that would be a risk premium. At such rates, tenants would not be forthcoming and, therefore, neither would developers.

Aside from that, the investors needed to take the end product off the developer would shy away, and without such pre-commitment, banks would not fund their construction. Pre-earthquake Christchurch was deemed a poor office-building investment location by major professional investors for sound reasons, because its office market lacked rental, and therefore capital, growth potential. Thus, the city’s buildings were owned by local hobbyists and sentimentalists, as is the case with our provincial cities.

Already, Auckland commercial real estate agents are reporting a deluge of Christchurch commercial property owners seeking to reinvest their insurance proceeds in a superior investment location. In that sense, for many of these people, the earthquake has proven to be a saviour windfall.

Very refreshing words from an old hand at investments, development and building.