Taken literally, it means "at a lower altitude". It is thought of as the lower part of the city. The parts that are swamps, or flood zones, or with no commanding views.
In addition, the word "down" could also have a negative connotation, such as "down on their luck", or "down market". It also logically means the opposite of "Up Town", which has positive connotations of being expensive and exclusive. Therefore, downtown is assumed to be a poorer, undesirable, fringe neighborhood.
Lesson Learned:
When talking to Aussies (or any non-American), use the more precise term "In Town". Or as the Aussies like to use, "The CBD" (Central Business District).
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