REIT ASIAPAC
OUTLOOK
Outlook
RENT IMPLICATIONS AS
COVID-19 FAST-TRACKS THE
FUTURE OF WORK
Covid-19 is forcing the world of work to move online. As homes become offices, questions are
asked: is part of this shift permanent, and what are the repercussions on commercial offices?
Victor Yeung, the Chief Investment Officer of Admiral Investment, discusses how Hong Kong
businesses have moved online and the implications for rents in suburban and city offices.
By Victor Yeung
Chief Investment Officer, Admiral Investments
Hong Kong, along with Taiwan, was the first society alerted to the
spread of Covid-19 outside of Mainland China. Protocols, from
both the government and corporates, were quickly implemented.
Scholars have attributed the relatively low infection rates to the
thoroughness in the government’s actions to prevent its spread.
A HOME WITH OFFICE EFFICIENCY
In the past, the finance and real estate sector often saw video
conferencing with clients as less desirable than in-person meet-
ups. However, as video conferencing becomes the norm, more
meetings could take place via the internet. This will further
reduce the apparent distance between office nodes and even
provide an incentive to investigate alternative markets.
Since the Lunar New Year, the Hong Kong government has
announced that all civil servants will work from home. Many
corporates have made similar arrangements. Granted, some
companies need to maintain physical presence at the office,
while others have split teams taking turns to work in the office
and from home on a rotation schedule.
While there are no precise data, the number of people who
have switched to home-office is probably in the hundreds of
thousands—perhaps reaching as many as half a million. As of
early March, many of these measures remain in place, meaning
that the work-from-home protocol has already been active for six
weeks and could last for another month.
However, the arrangement took some time to take root. In the
first week, a group of high-flying management trainees from a
major bank was caught hiking during work hours. But as soon as
society understands that the protocol could last for weeks, work
productivity gradually picks up. Modern IT systems allow staff
members to access work information remotely. Many calls took
place via the internet, allowing employees to stay in touch with
both internal and external contacts.
Image courtesy of the Hong Kong Society of Financial Analysts
LEVELLING OF RENT
Over the past several years, Island East and, to a lesser extent,
Kowloon East have both seen large banks, law firms, and other
corporates moving in. Still, the demand in Hong Kong Central
has been strong enough to maintain a respected rental premium.
More widespread use of online meeting tools can reduce yet
another barrier to relocate. Over time, this may contribute to a
smaller rental gap between Central and the other hubs.
Working from home can benefit staff, from reduced or eliminated
travelling time to a healthier diet by eating at home. In many
other societies, working from home is already part of a work-life
balance programme.
Companies, especially those on flexible workstation
arrangements, should embrace a more permanent scheme to
reduce office use. For example, a one-day-per-week protocol
could cut office space requirement by 20%. Incrementally,
productivity will rise while rent expenses ease.
For Hong Kong, the 2003 SARS epidemic and the subsequent
containment measures are well remembered.
As activities gradually move online, IT-related assets, such as data
centres and cell phone towers in the U.S., will see an expansion in
demand. These assets are now available as REITs, and we expect
more capital to be deployed to these asset types.
Also, as societies get comfortable with teammates being in
a variety of locations, the traditional clustering effect will
weaken. Secondary office nodes may become incrementally
more appealing, as the company pays less rent, and the staff
enjoy more accessible amenities. This could level out rental rates
between city centres and the suburbs for many countries around
the world.
VIDEO CALLS BECOME A NORM
All Hong Kong schools from primary schools to universities
have been suspended to reduce cross infections. Many schools
maintained their teaching through online means. My 8-year-old
son currently attends up to five school lessons per day via online
video chats with his teacher, and many of his friends are taking
extra-curricular activities through video calls. Even my lectures
for a masters-degree programme have moved online.
SARS’S PROTOCOLS CLICK INTO GEAR
The SARS epidemic was a defining moment for Hong Kong. The
city spent roughly three months in heightened mode to stop the
spread of the virus. Habits, such as wearing masks when one
is under the weather and using serving chopsticks, originated
during the SARS, became ingrained in Hong Kong’s culture.
Covid-19 has brought back many of those protocols. With the
benefit of IT developments 17 years later, working and learning
from home has become more efficient. Even after Covid-19
abates, we expect this campaign to bring permanent changes to
the real estate markets.
About the author: Victor Yeung is Hong Kong-based Admiral’s
founding managing partner and chief investment officer. From 2007
to 2013, Victor was with LaSalle Investment Management, where he
managed the Asia Pacific portion of the USD 10 billion Global Real
Estate Securities programme and eventually became its Managing
Director, Asia Pacific Securities. He also previously worked for
Morgan Stanley and American Express. Victor was educated at the
Massachusetts Institute of Technology (MIT).
As a lecturer, I invested about US$50 on new equipment, including
a light stand and a microphone. Similar to the work-from-home
situation, once society realised that the protocol could last for
weeks, people started to look into video communication set-ups.
In March, I have conducted online webinars and competitions
for two industry organisations, and the format has received
favourable feedback.
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