While the latest round of lockdowns has seen reluctant city workers return to full-time remote work, the property fund manager believes the office will be back in some capacity once restrictions ease.
Charter Hall direct property CEO Steven Bennett told InvestorDaily while there was likely to be “greater flexibility” in corporate work patterns as a long-term effect of the pandemic, offices would remain “the key part of most workforces”.
“We don’t subscribe to the idea that everyone will be working from home – while half the country is working at home at the moment, that is a shorter-term impact,” Mr Bennett said.
“We’re seeing the rest of world start to open up as vaccine rates kick through... we tell people [to] look at the longer-term outlook, and we think while there will be greater flexibility – you might decide to work from home one or two days a week – you still need to be in the city meeting people three days a week.
“And the usual days that people work from home, being Mondays or Fridays, doesn’t change the office space businesses need that much – you will still often have a full workforce for the other three days.”
Mr Bennett said the fund manager, which looks after $52 billion on behalf of investors and saw between 12 and 16 per cent annual returns for its PFA and DOF office funds in the 2021 year, predicted a “flight to quality” in office assets as large tenants put more emphasis on collaboration, comfort and convenience for employees during their in-office hours.
“For the last 20 years we’ve had densification in the office sector, with tenants putting more and more people onto each office floor – the pandemic has meant that is not a great outcome,” he said.
“Many people are increasing the space they need, putting in more collaboration areas and not trying to get the same amount of people out on the floor as they otherwise would have.
“When people do come in, they want to make sure it’s as collaborative as possible, so it’s not much good if you’re trying to lease up a building that’s got no natural light and is not close to amenities.”
Mr Bennett said the local capital city office markets were still generating plenty of interest from offshore investors with longer time horizons.
“We had over 1,200 properties valued across all the sectors in Charter Hall at 30 June, we’ve got the best insight into valuation trends, and what that showed is assets with long lease terms and secure tenants like governments and ASX 200 [companies] were in strong demand from investors,” he said.
“Around 65 per cent of all office acquisitions in calendar year 2020 were by offshore capital – they are looking at Sydney or Melbourne, saying, ‘I’ve got the opportunity as a North American pension fund to invest anywhere in the world’, and in a relative sense, Sydney and Melbourne look attractive in terms of outlook and rental increases we get every year in this country.”
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