With even Kogan (ASX:KGN) eyeing a return to the office, where next to invest?

As states borders reopen and Victoria's lockdowns ease, the office market returns to the spotlight. Is this an opportunity for ASX office REITS?

When COVID-19 arrived uninvited on Australia's shores on 25 January, few could have imagined the massive disruptions that soon followed.

Among the biggest of those disruptions was a rapid shift towards shopping and working from home.

The shopping from home shift saw the share prices of ASX-listed brick and mortar retailers – and their landlords – fall hard. Most of them have yet to recover their January share price levels.

On the flip side, a handful of shrewd ASX-listed online retailers not only recovered from the viral selloff in February and March, but have gone on to post hefty gains.

The share price winners and losers

Take online retail darling Kogan.com Ltd (ASX: KGN), for example. Despite falling more than 52% earlier in the year, Kogan's share price is up 173% since 2 January.

Most of those gains have come as the company's 200 some staff work from home. Like the majority of businesses across Australia, Kogan's offices have not been able to accommodate their normal occupancy in these days of social distancing.

But now even Kogan's tech savvy management is eager to open the office doors and get its staff back in for face to face engagement.

As founder Ruslan Kogan said in the Australian Financial Review:

I'm craving to get back into the office and I know that the majority of our team also can't wait to get back.

I think as humans we have a tendency to extrapolate the current environment when predicting the future so lots of people are saying that offices will never be the same. I think it's the wrong view. The same happens when your poor football team wins two matches in a row and all of a sudden you think they're a chance at the premiership.

The office environment is currently undergoing massive disruption and we're not permitted to use our offices. I'm sure once it's safe to do so, things will return to just how they were very quickly.

Office shares emerging from massive disruption

Like brick and mortar retailers, most office shares are still posting significant losses for 2020. But if Kogan is correct and the office market returns to how it was very quickly, then the share price gains should come just as fast.

One way to gain exposure to a basket of quality office assets is with the Centuria Office REIT (ASX: COF), which makes up part of the S&P/ASX 300 Index (ASX: XKO).

Real estate investment trusts (REITs) trade on the ASX just like any other share.

Centuria holds 23 quality office assets valued at $2.1 billion as at 30 June. Most of the assets are located in or near Australia's major city centres, close to transport. The REIT pays an 8.6% annual dividend yield, unfranked.

Centuria was a strong performer in 2019, with the share price gaining 33% from February 2019 through to February 2020. But after office buildings largely closed in the wake of the pandemic, the share price fell 55% from 21 February through to 23 March. It has since regained 40%.

Year-to-date, the Centuria share price is still down 31%. As the work from home shift reverses and workers return to the office, this could prove an attractive entry point.

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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