Cooped-up fed-up workers will drive office revival says Charter Hall

The latest wave of lockdowns around the country will drive “cooped up” office workers, wary of the mental health impacts of working from home, back into city towers, one of the country’s largest office landlords says.

Charter Hall's 333 George Street in Sydney is seen as a frictionless office.

Charter Hall Group managing director and chief executive David Harrison said: “This second wave of lockdowns has massively changed the attitude of workers who, in the early stages of the pandemic, were a bit ambivalent.

“I get a fantastic lens into corporate Australia and universally, we’re hearing people are just sick of being cooped up at home and there’s a desire to get back and collaborate. The mental issues of being cooped up are really coming to the fore.”

That confidence in the future of premium office towers is driving Charter Hall, whose $22.8 billion office funds host more than 2000 corporate tenants around Australia, to continue developing and investing in new buildings and tenants.

About 42 per cent of the fund manager’s investment earnings come from office spaces and it has a $5.3 billion development pipeline in the sector.

‘The mental issues of being cooped up are really coming to the fore.’

Charter Hall CEO David Harrison

“We continue to expect large corporates and government tenants to want to move into new office developments,” Mr Harrison said.

Charter Hall, which manages a diversified mix of funds and developments in Australia and New Zealand, reported operating earnings of $284.3 million and a statutory profit of $476.8 million.

The earnings beat Charter Hall’s own upgraded guidance and were 4.6 per cent above market consensus, according to merchant bank Jefferies, prompting investors to mark up the group’s shares 6.6 per cent to $18.39 in afternoon trade.

Jefferies analyst Sholto Maconochie said: “A strong result and outlook with upside risk.” Mr Maconochie said he expected the group would exceed also its 2022 earnings guidance.

The flow of money into property looking for steady returns is boosting funds under management at the group by $11.7 billion over the financial year to $52.3 billion.

Mr Harrison said: “We have generated record fund inflows, gross transactions and funds under management growth.″⁣

Charter Hall powered out of last year’s COVID-19 downturn with a big boost to its funds and fee earnings, a performance it emulated this financial year, when funds under management fees rose 22.5 per cent to $188 million.

Property management fees were up 11 per cent, development fees rose 35 per cent and leasing fees lifted 18 per cent. Transaction and performance fees fell 67 per cent to $66.8 million, largely due to a one-off $98 million performance fee it booked the previous financial year.

Charter Hall will pay a final distribution of 19.3¢ at the end of the month, taking its total year distribution to 37.9¢.

It also upgraded its earnings guidance for next financial year, aiming for no less than 75¢ per security, a hike of 23 per cent, earning it another tick from financial markets.

Macquarie analyst Stuart McLean put an “outperform” on the group, saying its performance was “a beat to consensus”.

Mr Harrison said “people are realising that if they don’t get vaccinated, we’re going to have closed economies, which is not going to be prosperous for anyone”.

Until the economy reopened, property sectors such as retail and hospitality in city CBDs would struggle, he said. “But I think that will change as we move into the new calendar year.”

Simon Johanson is a business journalist at The Age and The Sydney Morning Herald.

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