A work from home future? Probably not

A work from home future? Probably not
Landsec's latest financials give us some clues as to what post-pandemic life will look like
David Kimberley
November 11, 2020

One of the best ways to get a glimpse into the human mind is to look at a company’s financial results.

Balance sheets may not make for the most riveting reading material, but looking at what goods and services people are willing to pay for, or not as the case may be, can tell you a lot about the current zeitgeist and how people are responding to it.

For instance, sales of peanut butter tend to go up during tougher economic times, with people looking to buy cheaper, longer-lasting food that can be a snack, treat or part of a meal.

We can see trends like this on a much broader level by looking at a company like Land Securities. The real estate investment trust holds property in several different sectors and so looking at its most recent set of financial results can give us some idea of how people have been responding to the pandemic and what might life look like afterwards. 

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Is work from home a fad?

Since day one of the pandemic, much has been written about how work from home is the future and we’re all destined to spend our lives in Zoom meetings, feasting on Ocado home deliveries.

Landsec’s report suggests otherwise. Not only did the company say that it still has strong demand for its office buildings, 99% of its existing tenants paid their rent on time. That suggests most of the businesses it's leasing to don’t plan on going full work from home any time soon.

And it seems as though many investors didn’t think that this was likely to happen either. After news of the much-vaunted COVID vaccine from Pfizer came to light on Monday, shares in Zoom fell by almost 20 per cent.

This isn’t to say that the experience of the pandemic is going to be completely swept aside by businesses. It wouldn’t be surprising if some companies do decide to let staff work remotely more frequently or even entirely.

But the idea that offices were going to be made redundant always seemed far fetched and any investors that had put money on that happening may have just been hit with a reality check.

Retail still stuck in the doldrums 

There has been much doom and gloom about the future of retail in the UK for a long time. 

Speaking to MPs back in 2018, Sports Direct CEO Mike Ashley said that “mainstream highstreets are already dead. They can’t survive.”

We wouldn’t go as far as that but it’s certainly the case that they’ve been doing very poorly and, as you would expect, having a pandemic hasn’t helped.

Landsec’s holdings in the retail sector illustrate this. In London, just over a quarter of its tenants failed to pay rent in the first half of the financial year. That figure dropped to 51% outside of the capital.

Part of this was obviously due to the coronavirus. Shops were closed and, even when they reopened, people were reticent about buying stuff from them if it meant having to congregate with large groups of people.

But as Ashley’s comments suggest, things weren’t going well for retail prior to the pandemic. High costs, low margins and the rise of ecommerce have all helped to eat away at the retail sector.

More homes, less retail

What the pandemic may have done is accelerate this process and looking at Landsec’s results, we can get some clues about what retail may look like in the years ahead.

Landsec is both repurposing its existing retail-focused holdings, mainly by making them less retail focused, and selling off a huge amount of retail real estate.

The picture that emerges is of a substantially smaller set of retail properties that are surrounded by homes and leisure facilities, like gyms or cinemas. In some cases it seems as though retail will be scrapped almost entirely and replaced by homes.

This is not to say that retail is completely dead. Just as it would be unrealistic to say we’ll never return to the office, it seems silly to argue that we’re destined for a future with no physical stores.

Instead it seems likely that there will be a smaller number of them. Landsec’s strategy suggests a more targeted approach that aims to deal with how people are behaving in the real world. 

After all, if we’re not going back to physical stores any time soon, then why invest as though we are?

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