Australian offices may never recover from the coronavirus pandemic but Michael Cook, group executive for property at one of Australia’s largest commercial real estate companies, Investa, says landlords willing to change with the times could yet come out the other side in one piece.
“The office market will survive this shock, but it isn’t going to be easy. We have to adapt to new ways of working and we have to move with our tenants.”
As workers start trickling back into Australia’s skyscrapers this week, the commercial property sector is in for a long road to recovery. Given the relative success of wholesale remote working, some workers may never return to their office, which could potentially add up to millions of dollars in lost rent for landlords.
The government’s mandated national code of conduct for landlords, which forces them to offer rent relief and deferrals for small to medium tenants, has further added to the sector’s woes.
The national office market is worth about $318 billion, of which Sydney has the lion’s share of $165 billion, and the outlook for the sector isn’t good.
Citi analyst Adrian Dark has forecast asset values could fall 15 per cent driven by a mix of income decline and yield rate decompression. Meanwhile, Macquarie Equities estimates a 10-15 per cent decline in Sydney values alone would amount to losses of up to $25 billion for the city’s office property owners.
But Cook, who has lived through many market cycles, says while conditions will remain choppy, landlords with quality assets that nurture their tenants, will survive.
“This crisis isn’t over so it is difficult to compare the pandemic to the global financial crisis but we have been staggered by the resilience of Australian businesses. And we just hope that every single one of them gets through this. This is the environment that will define us all,” he says.
Heading up a heavyweight player in a conservative industry, Cook or Cookie, as he is known to his friends and family, has a reputation for calmness and Investa finds its self in a fortunate place as the pandemic shakes up the sector.
The former listed office fund was sold in 2018 after a long and protracted takeover process to Canadian giant Oxford Properties. In Australia, it has more than $11 billion of funds under management. Its internal Investa management business is jointly owned by Investa Commercial Property Fund and Macquarie Infrastructure and Real Assets.
“We survived three takeover attempts, and in the process have developed a strong committed workforce, with a culture second to none,” Cook says.
One of its major assets is the new 60 Martin Place tower in Sydney, on the site of the former headquarters of Westpac. It was fully leased on completion and stands tall on the Sydney skyline.
After eight years with BT, Cook joined Investa 17 years ago and has lived through many changes in the boardroom.
In his book, Saving Investa: How an ex-factory worker helped save one of Australia’s iconic companies, the former chief executive Scott MacDonald, described Cooke as “being more valuable to this company than the CEO”.
“Cookie .. was a short guy, always dressed in black shirt with a colourful tie. He was a non-stop talker, passionate in his belief and fuelled by multiple cups of coffee a day,” Macdonald writes.
“He also appeared to know everything about the local market and every detail about each building and nearby competitive buildings. Cookie was a specialist, he knew everything about Australian office buildings.”
The black business shirts and the colourful ties are still very much part of Cook’s repertoire and while he is at the desk at a time when most people are still asleep, his down time is spent with his other passion, coaching and watching Australian Rules Football, mainly his beloved Essendon.
“For me working from home has meant longer hours at my desk, up to eight video meetings per day. I miss my numerous daily coffee meetings, my lunches, but most of all I miss those serendipitous interactions,” he says.
“I also miss my girls. As a coach of one of four senior Women’s teams at the North Shore Bombers, 2020 was shaping up as being our best year yet, with more than 120 young women signed up to play.”
He says balancing the requirements around work with training two nights each week and game day has been a challenge, “but strangely, it seems the busier I am, the more time I have”.
As an office landlord, the coming weeks will be some of the most challenging for Investa as staff start returning to work. The company has organised a roster system for people who are hankering to get away from the house and back to some normality and Cook says the workers should brace themselves for some long-term changes.
“Until the memory of the pandemic is fully expunged from our collective memories, the term ‘social distancing’ will be the new normal.”
“In lobbies and large offices, we could see the introduction of single direction walkways and the technology for contactless movement through buildings, such as revolving doors, security gates and lift buttons, will be everywhere.”
“So too, will be people-monitoring devices and to manage all this, buildings will need more staff and cleaning regimes will be expanded – outgoings costs will increase,” he adds.
These are seismic changes at a time when demand in the commercial property space has been slowly dwindling but Cook’s looking forward to the challenge.
“My career has been a battle with uneven demand and supply. We adapt, we play the cards we are dealt the best we can.”
“We’ve been living in a world of anaemic demand since the completion of Barangaroo in 2016. Thankfully, with the exception of Investa’s 151 Clarence and 60 Martin Place, supply has been minimal.
“As far as I’m personally concerned, tough markets give me the chance to really ply my craft. When the going is easy, anyone can make a buck, but markets such as the early 1990s or the GFC, and now COVID-19 – these are my markets.”
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