Service is the key in a tough climate

Posted On Friday, 22 February 2002 02:00 Published by eProp Commercial Property News
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Use of professional managers still a subject for debate.

Anthony DiepenbroekCompetition is intensifying in the property management arena as the industry moves towards consolidation with the emergence of bigger players and groupings.

While investment in property remains an attractive option in a volatile domestic and international economic climate, profitable investment requires active asset management if returns on outlay are to realise their maximum potential, say industry analysts.

Outsourcing remains a subject of debate: whether owners should delegate management to professionals or manage their portfolios themselves.

These aspects must be seen against the oversupply of office space generally and the revival of interest in refurbished buildings in some of the country's central business districts.

Quality of customer service levels is becoming a critical differentiator. Property managers operate in a fiercely competitive environment that has become extremely sensitive to the needs for economies of scale to meet the increasing demand for optimum customer service.

Anthony Diepenbroek, MD of iProp and president of the South African Property Owners' Association, says that larger property management companies are installing facilities management systems and electronic call centres to deal with tenants' inquiries.

There is a growing move to interface with service providers directly, aimed at improving levels of professional service.

Diepenbroek says these systems are costly and can only come into their own given economies of scale.

It has helped to fuel the trend to outsourcing by smaller listed funds that are not always in a position to install and operate fully electronic systems.

He says a key trend is for asset management to be separated from the property management function in order to eliminate unnecessary layers of management and possible conflicts of interest.

'People are recognising the benefits of investing in property and that its performance has been superior to many other investment classes. As a result, property is starting to become an investment class of its own, as opposed to merely an investment in bricks and mortar.

'There is an increasing awareness about issues such as risk management, geographic diversification, fixed versus listed property vehicles or combinations of these, usage mixes, the need for a high degree of performance measurement and the timing of acquisitions in relation to the business cycle.'

An increase in the number of listed vehicles has made managements accountable to a much wider base of stakeholders, says Diepenbroek.

He believes property remains an attractive investment, despite uncertainty caused by volatile interest rates and an oversupply of office space, which also extends to decentralised areas.

'But this has to be weighed up against the fact that if property is situated in a good location it is likely to attract tenants anyway.'

Property is not so sensitive to international equity market fluctuations.

Diepenbroek says that the international experience suggests that property funds that have invested internationally, as opposed to focusing only on the domestic market, have almost doubled their performance by comparison.

Bill Ward, director of commercial and industrial property for Colliers RMS, says there is a blurring of the lines between what was traditionally property management and what is now seen as facilities management, particularly with regard to softer services and technical support services.

Several companies, including Colliers RMS, have capitalised on this to an extent with their own facilities management divisions.

But Ward says the tenanting of buildings and the collection of rent still remain well within the domain of property management.

'Your bread and butter is the long-term contracts you have with existing clients.'

He says another trend has been the amalgamating of a number of sizeable companies, which in turn has led to the formation of a number of larger property management companies dealing with substantial amounts of property.

Rodney Luntz, of property consultants Abro Luntz, says oversupply of office space in a number of areas will continue.

'We expect this tenants' market to continue for at least another 18 months. It is therefore prudent for tenants to take advantage of the soft market and lock themselves in to favourable leases for long periods of anything from five to 10 years. However, this must be done only after taking professional advice, as there are numerous pitfalls.'

Luntz says the increase in the repo rate and the corresponding increase in interest rates to 14% does not bode well for the private investment market.

'The rate was increased to prevent the rand's collapse threatening the Reserve Bank's inflation targeting. It is possible that this hike may not do the trick. It is therefore crucial to watch what happens to inflation in the next couple of months. If inflation does tick up, another rate hike may be on the cards, with disastrous consequences for the property market,' he says.

Last modified on Thursday, 22 May 2014 16:38

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