Workspace Group (LSE: WKP) has had a phenomenal year so far, with its share price surging 25% (at the time of writing) since January. After making a 52-week high in late August, it would be easy to think that the stock might begin to run out of steam. That being said, it still has a long way to go before it even reaches the levels it was trading at before the pandemic.
Workspace Group is a real estate investment trust that owns and manages a large portfolio of properties in London. Like many large real estate companies, Workspace was hit hard by fears of the Covid-19 pandemic. It didn’t help that most Workspace properties are commercial real estate such as office buildings. During lockdown, people couldn’t come into their offices and started working from home. Many businesses began to wonder that if their employees could work just as effectively at home, why should they fork out thousands of pounds a month on pointless office space? This seemed like a huge long-term problem for Workspace Group, and investors began to panic.
So why has the price rallied?
Once lockdown measures began to lift, many people wanted to go back to work. It turns out that working from home can be challenging for employers and distracting for employees. Suddenly businesses need office space again and Workspace Group could provide it; in fact, Workspace has said that customer demand is now running at pre-Covid levels. This resurgence in property demand can be seen in commercial real estate prices, with most estimates on this inflation running between 10 and 20% for the year. Of course Workspace took substantial losses in 2020, but as things started turning in its favour, so did the share price. It would make sense, therefore, that much of the recent price rally can be explained by investors pricing in a better future for the company and perhaps attempting to gain exposure to a booming real estate market.
Will the Workspace Group share price continue to rise?
It should always be acknowledged, when it comes to investing, that past performance does not indicate future results. All this means is that, just because the share price has performed well so far this year, it doesn’t mean it will continue to do so. That being said, however, there’s a lot of momentum behind the share price right now, and an accommodating economic climate for Workspace Group means the rally could very well continue. However, it appears that the increased demand for real estate may already be starting to dwindle. Not to mention that, after such a strong couple of months, I wouldn’t be surprised if the stock has a few pullbacks as investors start to take profits. Regardless, I think this is a company for me to keep an eye on, especially if earnings begin to improve and demand for commercial real estate continues to grow.
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Kevin Diamond has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.