MR MONEY MAKER: Flexibility was the key to tough year

Adjustable costs

The joy of hindsight – if only we had known! Well none of us knew the pandemic was coming but we have now all learnt to live with it – for good or ill. 

This virus, in whatever form, is going to be with us for an indefinite period. There’s a lesson in investment and finance from this. 

For me, the core learning point is flexibility and being able to adjust and change, and to do so often at very short notice. 

Flexible: Firms have had to look at their office space where cleverly worded leases lock them in for rigid periods

Key cost areas 

For most companies, their most expensive costs are usually their payroll. 

However, this time around we saw some greatly imaginative efforts from both companies and governments. After all how many of us had heard of furlough before, or even becoming a T*** – working in the office on Tuesdays, Wednesdays And Thursdays. 

However, the other prime cost, and often the most rigid, is office and work space. As a result of the change in our shopping habits as brought on by the pandemic, warehousing space has been in high demand. 

Equally, though, firms have had to look at their office space where cleverly worded leases lock them in for rigid periods and usually with the ridiculous demand of built-in rent rises. I am pleased to see that this is now coming under greater examination.

So what can we do? 

Flexible office space is often the answer and the growth of this over the past decade had been most impressive. However, what was useful flexibility for new start companies and new departmental units suddenly became mainstream as firms examined the new work regimes being brought forward out of necessity. 

One of the leaders here has been IWG, which owned Regus, probably the brand leader in the UK. 

They now think their occupancy is at 70 per cent of where they were pre-pandemic. The company has spread into other areas such as digital and technology businesses, and may well be looking to spin off non-core assets and concentrate on the flexible office market. Remember, this market can be very variable, from quite smart private offices through to open spaces full of enthusiastic Gen Xers at desk points and not too far away from table football and table tennis.

Why this sector is good 

The share price peaked in January 2020 at £4.69 and despite being apparently perfectly positioned for such flexibility with costs, the price is now down to around £2.76. 

Although it has been affected by demand, I can see rising demand next year as the entrepreneurial spirits start to stir again. 

I like this sector rather than direct property as I can see where the demand can come from. Of course, another lockdown or some other catastrophe could put a nasty hole in the business, but at this value I think they are attractive. 

A single stock is risky, so a property fund would give you a wider coverage, and would include property outside this specific niche. In which case the iShares UK Property UCITS ETF is a low-cost access to the market. 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally. 

This post first appeared on Dailymail.co.uk