Insights

Employment precincts have a greater economic value than you probably think, and they will play an essential role in Australia’s post-COVID economy

Posted May 14, 2021

SGS Economics and Planning Jeremy Gill publications headshot
In this article, employment lands include enterprise, industrial, commercial, and business zones – essentially, land that doesn’t generally sit within central business districts or retail centres. Employment precincts describe the diverse employment and economic functions that occur on these lands.

The planning industry is often criticised for creating red tape that hinders development. As Australia's economy starts to recover from a COVID-19 recession, voices calling to cut red tape and increase flexibility in employment zones are getting louder. Two recurrent myths often espoused to advocate for changes to employment land zoning are that industrial precincts are low value and that greater diversity of uses is needed to create greater vibrancy. Both are incorrect. Here is why.

Two employment precinct myths debunked

Myth No. 1: Industrial operations are low value, and employment precincts should transition to the highest and best land uses to boost economic contribution.

This recurrent argument centres on the need for industrial and urban services precincts to ensure they are flexible enough to become ‘more productive’ in their land uses by transitioning to the highest and best land uses.

This argument fails to understand the full value that industrial and urban service businesses contribute to the economy. The claim that such uses are underperforming in their productive contribution to the economy is flawed; it assumes that the concept of economic value is based exclusively on land value or the direct economic contribution of the jobs in situ.

While industrial operations may be considered less productive per capita than other more knowledge-intensive jobs, they are, in fact, critical translators of value.

— Jeremy Gill

These precincts translate pre-production value driven by research and development and design into post-production value in after-sales service such as marketing, etc. (Figure 1 ). So, while these jobs may not directly create as much value as other sectors, they enable significant value to be realised through their operation and location throughout the city.

FIGURE 1: SMILING CURVE – DEMONSTRATING THE ROLE OF INDUSTRIAL PRECINCTS IN THE VALUE CHAIN
SGS Economics and Planning smiling curve industrial precicts in value chain v3
Source: SGS Economics and Planning, 2020 building on the Smiling Curve concept derived from the CSIRP Futures Advanced Manufacturing: A Roadmap for Unlocking Future Growth Opportunities for Australia (2016) and originally adapted from Stan Shih’s ‘Smiling Curve’ Theory

Even using standard methods for assessing economic contribution underscores the economic importance of employment precincts to urban economies.

A recent analysis by SGS compared the industrially-zoned land within Sydney’s Eastern City with large commercial centres across Australia. The analysis found that these employment precincts are more than twice as economically productive from a Gross Value Added (GVA) perspective than the Parramatta CBD and higher than the Adelaide CBD (Figure 2).

These are not low-value employment precincts.

FIGURE 2: ECONOMIC PRODUCTIVITY (GVA) OF INDUSTRIAL PRECINCTS AND COMPARISON CENTRES
SGS Economics and Planning economic productivity of employment precincts v3
Source: SGS Economics and Planning, 2020 using ABS National Accounts and Census data, 2016

Myth No. 2: A greater diversity of uses is needed to create vibrancy

Advocates for changes to employment precinct planning controls seek to increase land-use flexibility, create more mixed-use precincts, and avoid the risk of precinct sterilisation. But in reality, industrial precincts are more diverse in their breadth of activity than residential ‘mixed use’ zones and even many commercial centres.

Ironically, the push for increased flexibility can often increase the risk of sterilisation and reduce the diversity of activities within these precincts. In effect, mixed-use zones create homogenous outcomes, where higher financial value uses prevail and crowd out other uses.

SGS analysis in Figure 3 illustrates how diverse employment precincts are, with sampled Industrially-zoned precincts in the Eastern and Northern Districts being more diverse than the Parramatta CBD.

FIGURE 3: EMPLOYMENT PRECINCT DIVERSITY IN GREATER SYDNEY
SGS Economics and Planning employment precincts diversity in Sydney v2
Source: GSC Urban Services Database, 2017 & SGS Economics and Planning, 2020

The role of planning in supporting economic recovery and growth

This analysis into the value of employment land highlights two things. Firstly, employment precincts – and their land-use diversity – play a crucial role in economic value creation in cities. Secondly, the prevailing ‘highest and best use’ worldview is flawed as it does not account for the wider consideration of value described above.

These insights highlight the important role that planning plays in safeguarding the appropriate conditions for these critical economic functions to continue to operate. When looking ahead, the importance of planning both as an interventionist mechanism and as a tool for economic visioning becomes increasingly important.

As Australia charts a course out of the effects of COVID-19, employment precincts will be at the forefront of Australia’s journey. The push to grow Australia’s advanced manufacturing capabilities requires productive, flexible and accessible floorspace close to the commercial centres, universities and hospitals where much of the related research and development takes place.

— Jeremy Gill

These are examples of future industries that will drive or support economic growth in Australian cities in the coming years, requiring well-located employment precincts to operate effectively. They highlight the importance of forward-looking economic and land use policy and reaffirm the planning industries’ role in spatially articulating this future and putting in place the necessary policy settings to achieve it.

SGS Economics Planning Jeremy Gill
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Jeremy Gill

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