How to get extra performance from your built
assets
“Our view is that significant extra performance
can be derived from built assets in two ways: Firstly, from
increased revenues, performance and services and secondly, by
reduced operation costs.”
In the current market, cash is an increasingly precious
commodity. Businesses in all sectors are no longer pumping money
into the creation of new assets. Instead, investors, owners and
occupiers of built assets across all sectors are focusing on ways
to improve shareholder and stakeholder value by making their
existing assets work harder, with limited capital expenditure.
Our view is that significant extra performance can be derived
from built assets in two ways: Firstly, from increased revenues,
performance and services and secondly, by reduced operation
costs.
In our experience, the organisations who achieve most value are
those that realise that their built assets are not just bricks and
mortar, but also an opportunity for generating improved business
efficiency. The key is in understanding the direct contribution
your built assets make to your business revenues and the effective
delivery of services. Once you make that link, and are able to
benchmark the performance, you can identify how your assets could
be better used to generate greater revenue, or where efficiencies
could be identified to save you money.
Typically, we find that this approach will achieve bottom line
cost savings of 10% and an increase in revenues or services
delivered of 5%.
However, landlords will only maximise these opportunities if
they get closer to their tenants’ needs.
From research we have commissioned from our retail and corporate
office occupier clients, 71% of tenants interviewed felt that their
priorities were not being supported by their landlords. Also, 77%
of tenants did not feel their service charges represented value for
money. If landlords can bridge this service delivery gap, they will
be able to benefit from increased tenant retention and additional
revenue streams in a challenging market.
Bridging the gap
Many companies struggle to make the link between
built assets and revenues or services delivered. Too often we find
that the people who are responsible for built assets are not given
the mandate or authority to influence the key business drivers. Our
experience is that all businesses have a varying degree of
misalignment between the built assets and the revenues and services
they generate.
In addition, many organisations are still
adjusting from a boom period when the emphasis was firmly on
creating new assets rather than improving the performance of
existing ones.
If the above is resolved, the built assets can
act as a well-oiled engine to support the business, whether it is
growing or consolidating, ultimately increasing shareholder and
stakeholder value.
We suggest the following will help realign the
assets to business performance:
- Direct exposure to the market the business is operating
in
- An understanding of where the business revenues are coming from
or services being provided, both now and in the future
- Understand the nature of different asset types and how they
support the business
- Benchmark the asset performance and readjust to fit the
business needs.
Armed with this level of knowledge, asset and
property directors can achieve considerable value to the business.
In the case of our clients from the Real Estate investor sector,
they can even go further by finding additional income streams from
tenants.
Increasing income, reducing costs
So how do you go about making these changes, particularly in a
downturn? The starting point is benchmarking - not just where your
business is today, but where it will be tomorrow. Once you know
that, we are finding a number of approaches particularly effective
in squeezing extra performance out of the built assets that support
the business plan.
Bring in extra revenue: Productivity and efficiency
reviews
Often, we find that what works well is a fundamental change of
approach. For example, when we advise Real Estate Funds we
recommend that they view income streams from their buildings not
simply in terms of rental per square foot, but as a source of
operational revenues. Suddenly, clients are able to realise
additional sources of revenues from non-rental income sources.
Another example is in the public sector where we have
consistently linked the business operational models with the
functional requirements of space. In one such case, we looked at
the operational practices of a London council and concluded that
the same services could be provided with a signigicantly reduced
space requirement.
From the manufacturing sector we have various examples where the
performance of factories were boosted by realigning the machinery
to reduce downtime, or where more product lines were added to the
current range.
Reduce cost: Aggregating supply chains
Now is the time to rationalise the number of suppliers, drive
productivity from ‘performance based’ service level agreements and
incentives to reduce waste. Packaging together disparate supply
chains for services, for example, maintenance, telecoms and waste
disposal, and then extending those services to your tenants can
save money and even boost performance. We’re seeing a high number
of recently acquired or merged businesses examining their
collective built assets for opportunities to reduce costs through
aggregating services.
Reduce operational expenditure: Category management
There are good lessons to be taken from the retail sector on
reducing operational expenditure through the use of category
management. By looking at your assets in categories of use or
income, you are linking costs directly to revenue. Each category
can be run as a mini business with its own performance measurements
and targets. You can then work closely with suppliers to identify
efficiencies and improve performance.
Improve and protect revenues: Knowledge management
Now more than ever it is important to have a clear understanding
of what you have. This is prerequisite for any property director
wanting to be in full control of their built assets. However, we
are finding that too many organisations do not have a comprehensive
register of assets that will enable them to make informed decisions
and move quickly in response to a challenging market.
With a move towards more M&A activity as corporate values
are eroded, we wonder how many property directors are in control of
their built assets and able to identify asset risks and
opportunities quickly. By using a suitable technology platform,
property directors will be put in control of their assets. The more
sophisticated tools will provide data on built asset performance,
creating even more value for the business.
Maximise expertise: New asset
management models
Some Real Estate investors, facing reduced fund management fees,
have been forced to create a new model to manage their built assets
that will drive extra performance and earn the fund improved
returns.
This model has been labelled Delivery Partner Model solutions by
clients. Typically it involves integrating your existing property
function with an external provider to deliver all asset decisions
from transaction, to CAPEX and OPEX. The partner is entrusted that
they will pool the best knowledge and experience available. The
joint team is then incentivised and measured against a common set
of performance measures focused on value and cost efficiency.
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Built asset performance [518kb]