Hubs for creation, collaboration and connection

It may seem counter-intuitive, but workplaces of the future are not just spaces for people to get work done in. Hybrid work arrangements have laid bare the reality that productivity is no longer limited to the office.

If work can be done anytime and anywhere, how can people be incentivised to continue returning to offices? In the same survey conducted by JLL in 2022, 77 per cent of those surveyed stated that investing in “quality space” is a more significant priority for their company than how much space is actually occupied.

Ultimately, human beings are social creatures, and offices are important in meeting this demand for social interaction, especially after COVID-19 and the long periods of social isolation that followed. In fact, remote working can sometimes be more stressful for people or even lead to lower productivity and discipline, because of the lack of a clear physical divide between work and rest.

But what constitutes a quality space? By and large, this means that offices have to be redesigned to consistently facilitate opportunities for connection and collaboration, rather than individual work. A survey done by KPMG among Australian businesses revealed that 67 per cent of respondents believe that the office will be a place to collaborate and solve problems with both their teams and clients, while 42 per cent go into the office to connect and socialise with colleagues. In contrast, and unsurprisingly, only eight per cent believe that the office is a space to do thinking that cannot be done at home.

So, will the Future of Work hurt REITS?

Real estate investment trusts (REITs) have historically provided investors with access to the real estate market without owning property, generating consistent and competitive long-term rates of return. With hybrid work looking like it’s here to stay, some worry that there will be negative long-term implications on real estate investments, especially REITs.

Perhaps such assumptions may have carried more weight a year or two ago, when, in the thick of the pandemic, people worked from home for extended periods of time and office sale transactions fell steadily. But the outlook for 2023 looks promising in comparison. Investors may not need to be overly concerned, especially as more people continue to return to the office following the reopening of city centres.

The trends shaping the future of work are not lost on office real estate investment trusts (REITs) either, as they are preparing to – if not already – adapt to the evolving needs of their current and potential tenants. Hence, the segment may still offer attractive investment opportunities, as long as the office REITs are able to transform themselves to cope with the changes.

Some investors are also concerned that commercial real estate in central business districts (CBDs) may not be as valuable as in the past due to telecommuting arrangements, but a complete shift to work-from-home is unlikely – and unrealistic. In fact, there are currently plans to transform and rejuvenate these areas as not just work districts but vibrant and convenient mixed-use places to live and play in. The Urban Redevelopment Authority’s CBD Incentive Scheme is encouraging this conversion, with the 99-year Marina View white site being just one example of an opportunity for developers to create spaces that enable a wider diversity of uses beyond work, including residences and hotels.

The rebound is already happening. Office rents in Q3 2022 have reached a near 14-year high, exceeding pre-pandemic levels, and S-REITS with Singapore-based office assets are reporting growth in rental reversions and improvements in occupancy rates. For example, Suntec REIT’s Singapore office portfolio strengthened in Q3 2022, driven by a strong committed occupancy of 99.4 per cent – above the core CBD occupancy of 94.8 per cent – and higher rent at Suntec City Office, One Raffles Quay and MBFC Properties.

While it is important for investors to consider office REITs that own a well-diversified portfolio of quality commercial properties, the balance sheet strength of the REITs also matters. To mitigate downside risks, consider diversifying your portfolio to help enhance the stability and resilience of your investment returns.