Why investors must look beyond rate hikes: Robert Gottliebsen

Share and bond markets are pivoting on interest rate and inflation speculation. Nothing else seems to matter. But the intensity of that speculation is obscuring a force that will ultimately rank with rates and inflation in determining the value of shares – the fundamental changes taking place in workplace lifestyles.

The most obvious casualty of the lifestyle change is the value of large areas of city office space. Superannuation funds and office property trusts urgently need to undertake a fundamental revaluation of the worth of these assets.

The share market has already at least partially adjusted the value of office property owning listed securities, although mainly on the basis of interest rates rather than fundamentals. But non self-managed superannuation funds are trading every day as members invest or withdraw money on the basis of values that are being endangered by a lifestyle change. Regulators need to pay attention.

Gemma Whitley in the office of the Vitality Club in Rosebery. Picture: Toby Zerna

The wider impact of the workplace change on the performance of public companies and real estate really came home to me this week when I yarned with the CEO of a top 20 public company.

He was beaming because on that day a record number of his city based office workers had decided to work in his leased offices. But it was still below 50 per cent, and he now realises that his skilled workforce is permanently going to spend more time working from home and, accordingly, that he has too much office space. He will not renew selected leases, and there are a lot of nervous landlords looking for buyers.

But the long term prosperity of his enterprise will depend on the CEO’s ability to develop teamwork skills in this new environment. Eventually, most of his office staff will return, but not five days a week.

Those teams of people who will continue to partly work from home are prosperous and are making different decisions as to where to spend their money. They are continuing to invest in their residences as part of their lifestyle change.

Unless they got caught borrowing too much money for expensive houses in the boom (those that did are often distressed) these affluent lifestyle changed executives are going to continue to spend.

One of the reasons parts of Australia went through a boom during Covid was that affluent people stopped travelling overseas, which then inflated their local spending.

Those relying on local spending from this part of the population are hoping the affluent don’t reembrace overseas travel on a massive scale.

One of the reasons we encountered such big labour shortages is that we were not equipped to satisfy this new level of affluent local demand. That’s still the case, but it is being partially overcome by a rise in the small enterprise/gig economy.

In the banking community outside technology people, the fastest growing salary sector involves recruiting or keeping those who know how to lend to booming small enterprises. Banks are beginning to realise that there is money to be made with cash flow, lending to smaller family enterprises who are servicing the affluent market. And the smarter of those enterprises are reducing their labour shortages by giving part-time contracting tasks to those on lower employment incomes with mortgage or rent stress

As the Reserve Bank tries to throttle inflation via higher interest rates, they are concentrating the economic blows to counter inflation on the lower income group in the community. At least traditionally, they are often labour voters, but are now being wooed by the greens.

Few chief executives of our larger companies have started to set their business strategies to take advantage of this lifestyle revolution, so shareholders need to press them to embrace the new spending patterns.