Essential to balance costs and income

Posted On Wednesday, 04 February 2004 02:00 Published by eProp Commercial Property News
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Accent is on economies of scale to satisfy clients, writes David Jackson

Bruce KerswillProperty managers have become sensitive to economies of scale, which they see as one of the single biggest differentiating factors in satisfying customers' needs.

As the trend towards outsourcing non-core business activities has gained momentum, so the level of specialisation has increased in the management of high-value assets in the commercial and industrial property sectors.

Bruce Kerswill, MD of Spire Property Services, says that outsourcing the management of properties allows owners to focus on their core business without having to collect the rent, haggle with tenants and attend to maintenance issues.

Kerswill says that the property manager needs to perform the rent collection and administration functions efficiently, and have the necessary experience and skills to deal with building management functions promptly.

Marketing the property to tenants is a critical aspect, as rental income is the basis of the investment return on a property, he says.

Kerswill says his company's focus is on maximising income by ensuring that vacancies are kept to a minimum.

"We let space aggressively when it becomes vacant and retain existing tenants by approaching them when leases are set to expire.

"As a result of this approach, our vacancy ratio on the portfolio we manage was around 3% over the past year, which is an excellent ratio."

Kerswill says that on the asset management level, property asset managers should advise clients on optimising returns from a property from an investment point of view.

He says this is particularly valuable when the owner has a portfolio of properties.

Clients will benefit from the asset manager's specialist knowledge of the property market in terms of trends, rentals and cost structures, among other aspects, he says.

Of particular importance is input on monitoring the condition and earning capacity of the building as it moves through its life cycle, and recommendations on "hold" or "sell" decisions.

Kerswill says a holistic view of the property is important, as in many instances there is a trade-off and balance between earnings and expenses.

"Often an asset management approach will involve investing in key elements that will affect the property's income-generating potential."

Meanwhile, the retail sector in property management continues to reflect buoyancy.

Roger Corlett, director: property management for Liberty Properties whose prime focus is management of Liberty Group's property portfolio says: "We've had a fairly good 2003. We are showing in the region of a 10% growth on the return on our properties. The reason is to some degree historical in that leases are undertaken for a number of years, giving us an edge.

"The other aspect is that our portfolio is heavily weighted in terms of Sandton City and Eastgate, and because these two centres do so well they benefit the rest of the portfolio."

Liberty Properties also has a number of smaller centres in its portfolio, among them the recently opened Liberty Midlands Mall in Maritzburg.

"The turnovers have been exceptional over the Christmas period and we are delighted with the results so far," Corlett says.

He is confident of a reasonably good 2004 in the retail sector "which I believe will hold its own once again".

While efficient property management of commercial properties is critical for good returns on investment, the prudent management of residential property is also seen as essential in this sector of the property market.

This is particularly so given the emphasis on buy-to-let as a residential property asset class.

Raal Nordin, CEO of Just Letting, says that many residential property investors have not previously been exposed to the ins and outs of property management and may not be as aware of the vital focus points.

Nordin says the rental market has taken a bit of a dip, with average rentals declining by about 20% to 25% as a result of an oversupply of stock on the market at present.

He cautions that investors purchasing on a buy-to-let basis should bear in mind that they are unlikely to obtain the expected 1% return in rentals for example R5000 a month in rent on a R500 000 property and that returns realistically are around 0,75% at present.

But Nordin emphasises that residential property is still a prudent investment and that the oversupply situation is cyclical, with every prospect of the market picking up again within six to eight months.

Focusing exclusively on rentals, Just Letting has 32 owner-operated franchises in Gauteng, and the Western and Eastern Cape.

 

 

Last modified on Thursday, 22 May 2014 09:27

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