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Office properties here to stay: AMP Capital

Speaking at the Wollongong leg of Financial Standard's Advisers Big Day Out regional roadshow, AMP Capital portfolio manager Christopher Davitt said despite pandemic pressures and the subsequent workplace trends, the outlook for office investments remains positive.

Flexible and remote work arrangements have irrevocably changed the nature of employment and consequently the demand for office space. However, Davitt said there are several factors that mitigate drops in demand.

"For the last 30 years, the workspace for employees has been falling," Davitt said.

In the 1990s office space was approximately 20 square meters for every employee. Comparatively, some pre-pandemic developments had shrunk workspace ratios to as low as eight square metres per employee, he said.

"If that metric starts to turn the other way you could have a very big increase in demand almost coming from nowhere," Davitt said.

Davitt also said the fact some of the largest tenants in the market had significantly grown through the pandemic is cause for optimism. He specifically mentioned how government had increased in size and noted it's the largest user of office space in the market.

Still, he did say: "Demand on a post pandemic basis is lower than a pre-pandemic basis, but not by a huge amount."

Another burgeoning cloud for the office market is whether rising interest rates will result in falling prices.

Davitt explained: "For the residential market, it's typical to use 80 or 90% debt. The bank has a lot of say how much you can borrow and that has a lot of impact in terms of what you're willing to pay for a property in a competitive market."

That said, he added: "That same level of leverage and the idea that a property is worth as much as you can afford to pay doesn't translate so well to commercial and I don't think we're as sensitive to interest rates as that market is," he said.

"I don't think it's a market that, from where we sit at the moment, is in great danger of a big blow up."

Read more: AMP CapitalChristopher DavittAdvisers Big DayFinancial Standard