How you can cash in on the hybrid work revolution
FREEDOM Day has come and gone, yet many of the nation’s workers have not left their home offices. The Government is no longer instructing us to work from home if we can, but ‘expects and recommends’ a gradual return over the summer.
The truth is, many office workers do not want to go back at all.
‘People’s view of the office has changed for ever and they will have to be enticed out of their comfortable working-from-home bubbles,’ says Richard Williams, property analyst at investment research company QuotedData.
There is a financial incentive for firms to keep staff at home too.
‘Potential cost savings are not trivial,’ says Ben Rogoff, who runs the investment trust Polar Capital Technology.
He says remote working could save companies more than 40 per cent in office costs over the next three to five years.
With many workers happy to stay at home, and some companies content to keep them there, experts are predicting a move towards hybrid – or ‘smart’ – working where most people are in the office some of the time, and at home for the rest.
Smart working may be good news for employees and employers, but it turns the investment case for some of the nation’s most stable companies upside down.
‘There will be winners and losers from this work shift,’ says Danni Hewson, financial analyst at wealth platform AJ Bell. ‘But some of the losers may find they can capitalise on the change if they are prepared to think creatively.’
Identifying those winners and losers will help investors to thrive in the ‘smart’ new world.
It’s easy to identify commercial property companies as some of the pandemic’s biggest losers. Leasing premium office space in big cities is particularly tough if everyone is working from home.
According to a report by management consultant McKinsey published in June 2020, office space decision-makers expect time worked in main and satellite offices to decline by 12 per cent and 9 per cent respectively on pre-pandemic levels, with remote work forecast to increase to 27 per cent of all work time.
It is therefore no surprise that shares in property market behemoths such as British Land and Land Securities are still well below their pre-pandemic highs.
‘Hybrid working is likely to lead to lower demand for office space,’ says Jason Baggaley, manager of investment trust Standard Life Investments Property Income.
‘The impact will take time, as companies and workers get used to a new way of working, and its extent is not yet clear.’
But not everyone is as pessimistic. Marcus Phayre-Mudge is manager of both the investment trust TR Property and the fund BMO Property Growth & Income. He says that the reduction in demand for office space, which has occurred particularly in cities with longer commutes – for example London and Paris – may be short lived.
He points to record rents achieved from some recent London high-profile lettings, such as TikTok’s new headquarters above Farringdon Station in Central London, as evidence that quality office space is still in demand.
He believes that offices with high ceilings, good ventilation and strong green credentials will continue to attract premium prices. For example, TR Property holds shares in Derwent London, which is developing office space in Covent Garden.
It is also committed to office developments with net zero targets. AJ Bell’s Hewson says that property companies such as Great Portland Estates are also bucking the trend by attracting businesses looking for flexible workspaces.
‘Its share price has reflected that resilience,’ she says. Over the past year, it has risen by 26 per cent.
Hybrid working will continue lockdown trends such as increased pet ownership – good news for retailer Pets at Home – more home improvements and the building of home offices.
Thomas Moore, manager of Aberdeen Standard Equity Income, says the shift to flexible working will ensure many people continue to make their home working environment as appealing as possible.
As well as stimulating spending on home improvements, flexible working is helping lift sales of new homes, as families look for bigger houses including home offices.
In some cases, families are opting to move further outside London, to places that would previously have involved long daily commutes, in order to increase the number of rooms and size of garden.
Among Aberdeen’s portfolio are holdings in windows and door components business Tyman and housebuilder Vistry.
Meanwhile, on the tech side, Zoom meetings are not over – even though many might want them to be.
Stocks that allow home working connectivity – the likes of BT, Telecom Plus, Vodafone and Helios Towers – should continue to thrive too.
For individuals wanting to benefit from this hybrid working trend, there are investment funds that incorporate it. AJ Bell’s Hewson likes investment trust New River Real Estate, which she says has exposure to retail parks.
These have proved popular, as many people have preferred to shop out of town and take advantage of easy parking.
Williams at QuotedData likes Standard Life Investments Property Income Trust, saying it has ‘always been on the front foot’ when it comes to the hybrid working trend.
He says: ‘The trust has been selling off assets that it believes are not fit for the future and focusing on those that have strong sustainability credentials and will appeal to tenants in the new world of working.
‘For example, it has focused on office refurbishments that provide more amenities such as bike storage and shower facilities.’
Jason Hollands, of wealth manager Tilney, likes the investment fund Jupiter Income, which has more than 5 per cent of its assets invested in BT.
He says: ‘BT is the dominant provider of the infrastructure underpinning home broadband provision and there is currently an active programme of rolling out fibre optic cable to rural communities, supported by Government grants.’
Hollands also highlights Slater Growth Fund, which has more than 3 per cent invested in IWG, the serviced office space provider that owns Regus in the UK.
He says: ‘In a smart working environment, many firms will favour the flexibility to temporarily rent office space rather than take on long-term lease commitments.’
However you choose to play the hybrid working trend, the key will be to keep alert to the ever-changing mood.
With a tense summer ahead, it’s not yet clear how soon ‘back to the office’ will become the norm.
‘Lockdown has changed the fabric of many people’s lives and for some it’s a change for the better,’ says AJ Bell’s Hewson.
‘The trick will be figuring out how to weave the new normal back into the threads of the old.’
That’s good advice for commuters – and for investors, too.
Remote work is forecast to rise to 27% of all office time
Stocks that enable home working, such as BT, should thrive