Investec Property Fund's (IPF) strategy of repurposing office assets and "amenitising" office space has become even more relevant after the Covid-19 pandemic hit demand, the South African fund's joint-CEO said on Wednesday.
Structural shifts were already emerging prior to the pandemic with the increased prevalence of flexible working and shared office space.
"The impact of work from home has accelerated this shift. However, there remains a great degree of uncertainty around the longer-term sustainability of flexible working policies," IPF said.
Joint-Chief Executive Officer Darryl Mayers said the office sector is in a state of flux as businesses reassess working models and the extent of downsizing, if any, required. He added that as a result, attractive leasing campaigns and client retention strategies will set it apart.
In its 2022 financial year the group will expedite a number of experiential projects that were suspended due to the health crisis, such as incorporating more lifestyle amenities for tenants, Mayers said.
"The fund's strategy of repurposing office assets and amenitising office space has become even more relevant in the post-Covid environment to promote office demand," he said.
In the year to the end of March, net property income in the office sector declined by 19.2%, due to rental concessions, business failures and the short-term income impact of some renewed and re-geared leases.
Oversupply drove vacancies up from 6.9% to 9.7%, where they are expected to remain in the medium term, the company said.
Mayers said interest had shifted to smaller offices, with activity in the premium Johannesburg business districts of Rosebank and Sandton "pretty much dead".
Asked if the fund will exit its office assets, joint CEO Andrew Wooler told analysts it would not.
"We're at the bottom of the cycle and we've taken all the pain. We do think there is upside to come through holding those assets as opposed to trying to exit today."
Overall, IPF reported a 33.8% fall in annual distributable earnings per share on rental concessions granted to tenants.
It wrote down its South Africa portfolio by 899 million rand ($64 million), with the largest writedown of R525-million rand within the office sector.
Offshore, the fund has a 64,000 square meter development pipeline in the next 12 to 18 months for its Pan-European logistics portfolio, aiming to capture increased need for storage space due to supply chain reconfigurations and the e-commerce boom, Wooler said.