PMG Insights: Direct Office Fund and the office sector

PMG Direct Office Fund (DOF or the Fund) is one of PMG’s sector-specific funds, established over six years ago. With employers recognising the importance of the office environment to enhance culture and retain talent, we are seeing a continued demand for high-quality office spaces. This is reflected in increased occupancy and rent per square metre, for prime offerings across the main centres over the first half of 2023.

This blog provides an overview of the DOF strategy, as reflected in our FY23 PMG Group Annual Report, looking at some of the highlights and key activities.

Despite the temporary impact of COVID-19 on office sector sentiment, we have observed a positive shift – with a pronounced 'flight to quality' by tenants.

As the Manager of DOF, PMG rapidly responded to this by improving the quality of the portfolio to meet tenant expectations, lifting the Fund’s occupancy to 99%, and successfully meeting its targeted level of distributions for the prior year despite the economic environment.

Appealing to evolving tenant expectations

To appeal to tenant expectations and increase demand for the Fund’s properties, we have actively improved office environments and amenities for tenants including improving the sustainability of several properties in the portfolio.

From a functional perspective, this means flexible layouts with collaborative spaces, end-of-trip facilities that support active travel choices, EV chargers as well as energy and waste minimisation facilities.

Three of the Fund’s properties have waste and recycling systems and measurements in place, this includes incorporating waste stations within the properties. As part of these programmes, we have also held educational seminars for tenants and cleaners on how to effectively manage waste and recycling within the spaces they work in.

Focus on quality

The divergence between prime and secondary office space is widening. Employers are seeking properties that amplify their businesses in the battle to attract and retain top talent.

At PMG, this 'flight to quality' has been evident in lease renewals and considerations, as tenants have shown a preference for sustainable, modern facilities that support the wellbeing, work-life balance and productivity of staff, even if these facilities come at a higher cost.

This sentiment is also echoed by the wider industry. JLL's recent Office Sentiment Survey highlights owners’ willingness to ensure that they provide quality office space in the right location to attract quality tenants who in turn want to provide modern, collaborative workplace environments for their employees.

The survey also highlights quality space (modern fit-out, ambience) and location as the top two categories for employees.

Looking ahead

Looking ahead, the current interest rate environment continues to present some headwinds for the Fund and the office sector as a whole. However, we recognise the importance of ensuring DOF is well-placed to deliver regular distribution returns for the long term.

Going into the next year, we will continue to apply well-thought-out strategy to support the Fund’s strategy and objectives.

We remain optimistic about the office sector due to its importance in bringing humans together for collaboration, creativity, and culture building. While the hybrid working environment is here to stay, we’ve been seeing more employees returning to the office and organisations needing a location or a hub to create culture and connection.

Disclaimer: The information in this blog is of a general nature and was current as at Monday, 11 September 2023. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013, and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licenced financial advisor before making any investment decisions.