(Note: “fund” = property fund = listed or unlisted property owner)
Some hard data to start off with. Do you know that:
Given the current office vacancies crisis in SA, property funds are under enormous pressure to find a solution.
The tough question: how?
Property funds are not miracle makers. You cannot create tenants, nor can they agitate economic growth.
But you can control your actions.
As Andy Grove once said:
“Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them”
So how are South Africa’s great companies taking advantage of this adversity to action long-overdue efficiencies projects? We unpack three practical, current strategies, grouped into:
The focus is on retaining tenants, and avoiding churn.
Property funds are relooking at how they treat tenants. In line with other industries, they are becoming more customer-centric. Property funds are starting to see their role more as hotel concierge, than rent collector.
This is supported by the current view that it’s a better financial decision to renew an existing tenant at a lower rate, than allow that occupied space to go vacant. To many, this is a 180 degree from the hard-negotiating days of before. But we have an office vacancies crisis upon us, it’s a time for new ideas.
The funds are already stretched dealing with the busywork of managing tenants in financial distress. The overhead of managing greater vacancies eats away at the time available to grow relationships with existing tenants, and service potential new deals.
It’s a downward spiral. The “faster horse” solution is to employ, train and manage more people. This “faster horse” Band Aid works in an environment where profitability is growing. But now we have a crisis of slashed budgets, with fewer people under pressure to do more work.
Data is indeed the oil that commercial property runs on – for more, please see here.
More vacancies data equals more time spent managing this vacancies data by key employees.
Traditionally property funds have the same data duplicated in data siloes across their business. To clarify, disconnected data appears, in multiple versions, in websites, document folders, vacancies sheets, image folders, deal tracking systems, CRM tools. Using technology, these businesses are now helping centralise data into “one version of truth”. By collapsing these many moving parts into one, businesses are seeing:
Further, in this new age of work from home, such solutions are efficiency non-negotiables. Businesses need cloud-based, CRE-specific, secure, one-version-of-data-truth solutions.
With data squared away, what about the people in these businesses? Your average CRE professional spends at least 30% of their time doing avoidable admin. For more on this, see here.
But we thought the technology age ended manual labour? Wrong. Unautomated CRE businesses today are modern sweatshops. Like artisans of old, today highly-skilled CRE professionals spend large amounts of their time inefficiently moving data from one place to another. Not only is this time consuming, and a waste of scarce skills, it is error prone. (For more, check this article out)
Think about all the data “busywork” involved in reporting, budgeting, deal-making, data capturing, analysis and marketing…
It’s the 21st century, can you automate these processes? Yes. By way of practical example, here is one silent productivity killer being addressed. That property brochure you see? Done manually, it probably took four hours to put together, maybe even 8 hours. That vacancy schedule going out to brokers, bank on at least 3 person days. That website page, you’re looking at an extra 10 minutes here and there for every listing.
And all of this excludes the related, behind-the-scenes data busywork.
The solution: property funds are increasingly using tools that automate marketing. Benefit one: these businesses have taken turnaround times from the hours of their competitors, down to seconds. These time wins are huge, and they add up. Benefit two: the algorithms behind these brochures ensure that output is consistent with a corporate identity, and brand aligned.
Greater efficiencies is no longer a “nice to have”. The bar has been raised, automated processes are now standard.qqqqqqqqqqqq
While this data is poorly tracked, the general sense is that 70% of new leasing deals are broker driven. The remaining balance, generally smaller transactions, are believed to be “direct” – i.e. between landlord and tenant.
Given that brokers are so important, what are property funds doing to make broker lives more frictionless, and increase the probability of deals?
We have all heard the expression “you judge a book by its cover”. The first response was to give brokers beautiful, pre-created brochures in Powerpoint, where they can add their own logos.
Now this has moved on a step.
Much like the banks do, now property funds are feeding their rich image, property attribute and financial vacancies data into broker systems. So that brokers can integrate the property fund data into their processes. (For more info, see here)
The benefits of this are significant. The error rate of property fund vacancies data inside of brokerages has fallen from averages of 40%, to under 1%. Instead of vacancies taking days or weeks to update, info is in swiftly, and correct for tenant enquiries. Secondly, the time-intensive, deal-delaying busywork of confirming latest vacancy information between property fund and broker has fallen significantly.
This means
The days of banking data switches, where information flows seamlessly and in near real time between different players feels close…
What about brokers who are less advanced, without systems? Traditionally vacancy information has gone out monthly in Excel, Powerpoint or PDF. Now vacancy schedules can be generated, with images and website links, using sophisticated technology in PDF. And these vacancy schedules can respond to varying levels of data.
As a result of changing customer demands, the old brochureware websites are dead.
Their replacement: new dynamic, user-friendly websites that encourage dwell time, create a great professional impression of the property fund or manager, and allow customers (broker and tenant alike) to
Property funds have also identified that, in many instances, they don’t “own” their properties on the web. To those who don’t know commercial property (i.e. most tenants), such tenants can be forgiven for thinking that brokerages are the owners of a property. How? Broker websites appear first on Google when typing in a property’s name. While property funds own the properties in the deeds office and collect the rental, to the layperson online, ownership is ambiguous at best. To address this, property funds are improving their SEO and web presence.
A big term in marketing is customer lifetime value (CLV). In commercial property, the CLV of your average tenant is really high. Far higher indeed than many other industries. A high CLV means you can justify spending more to nurture and acquire this customer. In certain instances, property funds have overlooked the value of these customers, and ignored the importance of their brands. As a result, property businesses are late arrivals to the branding and marketing party.
Listed property funds like Redefine and Growthpoint with their sponsorships of stadia and sport teams were the first property fund entrants to the marketing party. Of late, we are seeing businesses effectively growing their brands – obvious examples are Fortress and Galetti with their marketing efforts, and Attacq leveraging their incredible real estate with signage. We are seeing higher amounts of advertising in print, on TV, and digitally.
A cohesive brand message is critical to customers. This, coupled with awareness of a brand, is crucial for credibility. Both helps tip the odds in favour of the property fund when a tenant is stuck between two property options.
This strong brand hopefully assists in boosting the perception of retail investors for listed shares – which is an additional positive side effect for these advertisers.
In line with marketing trends in other industries, we are seeing property funds adopting proactive outbound and inbound marketing using emails and social media.
As referenced above, we are seeing property funds improving their customer facing “shopfronts”. The improvement of custom websites and availability of custom, designed brochures is evidence of this.
Various property funds have reimagined their operations, to accommodate higher volume, shorter lease, more operations-intensive serviced space. Rather than working through incumbent serviced office providers such as Regus, WeWork, Workshop 17, TBE etc., many have attempted to disintermediate and service customers directly. (Mention must be made of Inospace following the same process in industrial)
Is it the first prize of these property owners? No. Do they love the operational overhead being loaded on to already-stretched team members? No. Is it a necessity and viable strategy – time will tell.
If you have a vacant property hurting your vacancy ratios and weighted average lease expiry (WALE) statistics, you have two options to improve your numbers:
In an economy under pressure, on properties that are geared, the second option is less attractive than the first. But with the office vacancies crisis, this is what property owners are doing.
Property owners are facing a toxic cocktail of rising vacancies and growing data volumes. This is made worse by constrained budgets, and a stagnant economy. These challenges are forcing businesses to look more closely at operational efficiency. Fortunately, the technology solutions are now mature and available to drive these efficiencies. While challenging, it is an exciting time to be in commercial real estate.
And, back to Andy Grove, on a positive note, this adversity is a great catalyst for long-overdue change. Great companies are using the crisis to improve!
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The maths: 1.7K new units, 1.7K retired units, and 6.3K changes to existing units for the month of April 2021. Sums – 1,737 (new) + 1,646 (retired) + 6,340 (updated) / 13,909 (total) = 69.9%.
This is a key number in South African commercial real estate (CRE). After a lot of hard work, we are able to deliver a firm, defensible value to SA – relevant to businesses (who almost all operate out of CRE), policy makers and the industry itself.
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