It’s hard to avoid concluding that employment and commercial property returns in Australia are going to come under a lot of pressure this year and beyond.

The banks are clearly preparing for some big redundancy rounds because of slower lending growth and higher funding costs and retailers have been closing down and reducing staff for a while already and are going to keep doing it. Meanwhile, the manufacturing industry is hanging on by its fingernails, through government funding of the car industry.

These industries are Australia’s three biggest employers and each is now in a downturn for both the same and different reasons. They are going to need fewer workers and less real estate — offices, shops and factories.

This week a big report on the banks by Jonathan Mott of UBS got a lot of attention when he predicted that 7000 jobs would go in the banking industry. He said the banks’ staff numbers have increased from 141,000 to 179,000 over the past 10 years, and would be cut to 172,000 over two years.

And the rest, as Stephen Bartholomeusz pointed out in Business Spectator yesterday will have to reshape their business models, if not reinvent them, because credit growth has fallen permanently, the cost of funds has increased and online banking is now fully established.

As with retailing and manufacturing — all businesses in fact — the first of those is the most important.

Banks have already disconnected themselves from the Reserve Bank’s interest rate moves and will be cutting their mortgage rates by less than official cash rates this year. In fact, they might even increase rates while the RBA cuts.

Cost increases can generally be passed on to customers, but if demand for your product is down there is nothing you can do but reduce costs, and for banks, retailers and manufacturers, that means staff.

Mott says the banks have been “lax” on costs, increasing staff by 7% a year for a decade, compared with 2.7% a year the previous decade. They were “investing for growth”.

That growth — 14-16% compound annual growth in lending — has now evaporated and the banks have entered a new era of low volume growth as their customers retrench debt. The only sector that is investing and borrowing large sums in Australia is mining and energy, and the local banks haven’t got much of a foothold there — the big projects are funded globally.

And mortgage rate cuts only tend to accelerate the reduction in lending growth because 80% of mortgagees don’t reduce their repayments: they just increase their principal repayments and keep the monthly mortgage payments the same. That offsets any growth in new lending, which is pretty weak these days anyway.

And the fact is that almost everybody is using ATMs and internet banking these days. Branches and face-to-face contact with customers are still important for sales and client relationships — especially big clients — but nobody’s going into branches to get cash, transfer money or pay bills any more.

A revolution has happened in banking that is not yet reflected in the way they operate. I suspect the reduction in banking employment will be a lot more than 7000 over the next few years.

Likewise retailing. I drove down the clothing precinct of Bridge Road, Richmond yesterday and in a few hundred metres counted six closing-down sales and three empty shops. While the big malls are still reporting near-100% occupancy, most strip shopping centres are being hollowed out by online shopping combined with weak consumer spending.

The retail revolution has only just begun but it’s happening with a rush now, helped by the strong Australian dollar. With customers doing a big part of their shopping online, a lot less shop staff will be needed to help them decide what to buy.

As for manufacturing, the Australian dollar is not coming down in a hurry so exporting and competing with imports will remain difficult, if not impossible.

The car industry patient is being kept alive by government life support, but at some point, you’d think, the respirator will have to be turned off, or at least down. Even with the subsidies, parts of the industry will die.

Empty offices, empty shops, empty factories … who’d want to own commercial property these days?

*This article was first published on Business Spectator