The Future of Work And What It Means For Your Investment

The experience of 2020 and our forced venture into the new reality of lockdowns, working from home and juggling work, family and life has opened much discussion about what happens next.

Numerous surveys show that a majority of people have found working from home to be preferable to the daily commute to a city office. What was previously a marginal work-style has become almost mainstream, and technology has certainly facilitated the positive and practical experience of productively working from home.

As a result, the expectation that the CBD of cities will soon return to ‘normal’ is increasingly unlikely. A quick look at what’s happening with CBD office space reinforces this. There are expected to be very high vacancy rates particularly in secondary commercial office buildings for the foreseeable future.

Office space to become apartments?

This has led to much speculation about the potential for converting CBD office towers into residential apartments. On face value, this may seem a great opportunity for investors, but let’s consider the rationale for this.

In an already over-supplied inner urban market of high-rise apartments, what would an influx of new, recently converted, additional residential accommodation do to prices and rentals? They would plummet, wouldn’t they? So, where’s the economic incentive for that?

Living in the CBD

Putting aside the rental cashflow/ROI scenario for a moment, who is going to take up all these new apartments? People always prefer to live close to where they work (no-one likes a long commute). But if more and more people are able to work remotely and there are way fewer jobs in the CBD because of it, why would people choose to live in the city?

Sure, the CBD has much amenity – social, entertainment and cultural drawcards – but again, with a diminishing local workforce and therefore customers, these businesses and organisations will also be forced to re-think their business model. The CBD is also a hub for international students and in-bound tourists, but it could be quite a while (perhaps years) before these return to pre-Covid numbers.

Apartments verses ‘lifestyle’ housing

So, what does this mean for the investor who is considering the best locality to purchase a property?

1. Inner city apartments may become very cheap (and there’ll be lots of choice), but they’ll not be delivering an acceptable economic return any time in the near future, and even finding a tenant may prove very difficult.
2. People working from home, or at least not in a traditional office, will choose to live where the lifestyle is best suited to their desires. They won’t need to commute so why live in the inner city when a spacious, brand-new house in an outer, family-friendly suburb with every local amenity is so much more appealing.
3. Massive government spending on infrastructure and economic stimulus will create thousands of new jobs and almost none of them will be in the inner city. They will predominantly be in the expanding outer growth regions surrounding the metropolitan area and in regional parts of the state. And the people taking up these jobs will want to live close to where they work.

Where to buy an Investment Property

In summary, the question of where to buy an investment property is becoming self-evident:

• An inner city (CBD) apartment in an over-supplied market with diminishing employment opportunities providing questionable cash flow and zero or negative capital growth prospects;

OR

• A new house and land in a spacious lifestyle-centric, family oriented, modern residential estate with nearby employment and every local amenity, that supports remote working with minimal commute.

You choose …

If you would like to find out more about investment opportunities in a post-Covid world, contact Resimax Group at investors@resimaxgroup.com.au