A number of ASX shares are exposed to the work-from-home phenomenon.
For businesses that own the offices and toll roads, it's a tricky proposition.
Does a company need to rent an office space if everyone works from home? If employees are coming to an office, will every employee get their own desk, or will it be a shared working environment?
There are interesting ramifications to consider. Let's look at what might happen next.
A permanent shift?
According to reporting news.com.au, a survey of around 1,200 companies, conducted by the Australian HR Institute in July, found that just 4% of companies required employees to work in the office full-time.
The survey also revealed that 7% of organisations allowed employees to completely work from home while 34% didn't have a set number of days required in the office but did encourage it. On average, 18% of employees work continuously from home.
However, a substantial portion of organisations have a hybrid model, with 46% of companies requiring employees to come into the office for at least two or three days a week. Some companies are reportedly trying to tempt people back into the office with enticements like free meals.
With such a large mindset change about working from home, it may not be surprising to learn that an office real estate investment trust (REIT) like Centuria Office REIT (ASX: COF) has been heavily hit. In fact, the ASX share is down 31% in 2022. However, rising interest rates could also be a factor here.
While each REIT's office portfolio is made up of different assets, it could be worthwhile to consider what was said in the Centuria Office REIT's FY22 result.
It said it's expecting its funds from operations (FFO) – the net rental profit – to drop 13%. Its portfolio occupancy increased to 94.7% and the weighted average lease expiry (WALE) was maintained at 4.2 years. However, management said it was optimistic about the future.
Fund manager and Centuria's head of office Grant Nichols said:
During FY22, we witnessed a continuous shift in tenant preferences towards better quality accommodation that is close to key transport nodes, providing better commutability and subsequently improved work-life flexibility.
Centuria Office Fund's young office portfolio lends itself to these leasing preferences, with its modern and sustainable office buildings providing better access to wellbeing amenity, retail and hospitality while offering affordable rents.
Australia's strong employment rate and rising return to corporate policies, provide encouraging tailwinds for tenant demand in FY23.
The REIT pointed to its tenant base of predominately government and major tenants.
There are plenty of other ASX shares that have exposure to office buildings either through ownership or management of them, including Cromwell Property Group (ASX: CMW), Dexus Industria REIT (ASX: DXI), DEXUS Property Group (ASX: DXS), and Centuria Capital Group (ASX: CNI). Collectively, they have seen large falls in 2022.
It's not all negative
However, as mentioned, many businesses still want their employees to come into the office some of the time.
JLL's global Future of Work Survey found that 72% of decision-makers believe the office is "critical to doing business". But it was also recognised that flexible working spaces could be key to attracting and retaining talent. Offices can still be that place, just in a different format.
'Culture' could be another substantial factor. According to Gartner vice president of research and advisory Aaron McEwan, leaders want to "keep a tight grip in culture in a hybrid environment". He said:
Leaders aren't asking me about productivity, interestingly enough, because every measure we get is showing us that productivity and performance have been [steady] – it's starting to decline a little bit now, but there are different reasons for that. But everyone is petrified they're going to lose their culture.
It's this panic, particularly from our CEOs and board of directors, which is forcing a whole bunch of people to come back into the office, when they don't want to.
McEwan suggested that culture could simply evolve.
Roads are already back to full volume?
One of the other ASX shares that generate substantial earnings from people commuting is Transurban Group (ASX: TCL).
It said in the fourth quarter of FY22, traffic reached a new high and exceeded pre-pandemic levels, driven by new asset capacity and increased mobility and travel. The company also said it was benefiting from inflation-linked toll escalations.
While office workers going into the office is one factor, Transurban pointed out that more people are using private transport to get around cities. As well, people are increasingly using roads to get to airports again.
According to an external survey by Transurban, at the end of FY22, "most people travelled at least three days a week on average to their workplace or place of study".
