Strategies to maximise real estate value

A mainstay and major component of any given business, real estate is an important and carefully managed aspect of a firm's assets. Founded on decisions that typically require large capital outlays, any winds of change will rapidly impact both the company market capitalisation and debt-financing structure.

According to a study by the National University of Singapore, firms here invested about 40 per cent of their corporate resources in real estate in 2001. While current trends suggest businesses are moving towards asset-light business models, real estate continues to account for a significant share of assets of Singapore companies, due to the low interest rate environment.

With the significance of real estate on a firm's value, the need for cautious, efficacious management of real estate holds greater weight for businesses, lest they risk becoming targets of a corporate takeover.

Therefore, corporate real estate asset management has quietly become a thriving business, as the industry lends its expertise to propel businesses towards full optimisation of its market value. Unlike asset managers in the financial sector that cover the acquisition and management of financial assets, of which real estate is but one of many assets managed, corporate real estate asset management offers a full scale, one-stop solution. From property management and facilities management to the acquisition of properties to meet company objectives, the capabilities of such an integrated service present a zero-gap blueprint for companies to follow.

The role involves the critical management of both the bottom and toplines for clients, exploring and implementing strategies to address the business units' objectives (efficiency, customer satisfaction, productivity), and providing a platform for real estate to be involved in the broader planning process (see Exhibit 1).

The corporate asset management strategy encompasses four key areas, including:

a) Increasing the value of assets while reducing costs;

b) Promotion through sales and marketing channels;

c) Increasing innovation, employee satisfaction and productivity; and

d) Increasing flexibility

Increasing asset value while reducing costs

Due to both physical and functional obsolescence, properties naturally depreciate over time. Physical obsolescence occurs over time from wear and tear, while functional obsolescence happens when the structure and design of a building are unable to fulfil the progressive needs of the company. Enter the corporate real estate asset manager, who works to slow down the depreciation of a given development through monitored, in-depth reviews of a facility's relevance to the business.

To deal with emergencies, a sound, routine maintenance programme and responsive system are required, despite steadily climbing costs of property maintenance resulting from rising manpower and raw material costs. To manage the growing, varied demands of users, most corporate real estate asset managers employ robust information technology systems to help monitor and manage facilities.

Engaging on-ground asset managers who have insight into common maintenance issues at the design or acquisition stage is ideal to ensure oft-overlooked maintenance costs are kept within consideration and within a manageable range.

Tapping their expertise also sets provisions for the rectification and avoidance of numerous maintenance issues at the design and acquisition stage, earlier and at a more cost-effective point of the life cycle of a property. Furthermore, asset managers can make recommendations on the feasibility of leasing or owning a development, forecasting the redevelopment of obsolete properties at the right juncture, based on current needs.

For instance, if office rents and prices are expected to trend upwards, there could be an impetus for a foreign firm which intends to remain in Singapore for the long haul to modernise their premises and maintain building ownership.

Sales and marketing of spaces

Besides advising on the maintenance and acquisition of buildings, corporate real estate strategies also involve the leasing and marketing of spaces, especially for owners that hold properties for recurrent income. Therefore, the demand for asset managers to plan, lease and market spaces is likely to increase, as more funds and developers seek commercial developments to draw on opportunities for recurrent income.

To ensure that the use of a property is fully optimised, asset management comes in with strategic planning of the right tenant mix, based on a keen understanding of locational attributes, in alignment to the strategic objectives of owners.

Increasing innovation, employee satisfaction and productivity

Location aside, firms are increasingly looking to refresh or develop other aspects of a workspace, to not only retain but more importantly, attract top talent.

With the proliferation of productive workspaces that encourage innovation and raise employee satisfaction levels, asset managers can step in to actively identify and embrace contemporary trends that align with business objectives. This requires determining the work processes, identifying convenient locations for the allocation of both human capital and inventory, and recommending possible additions and alterations to modernise a facility.

Managing flexibility in an uncertain environment

With the onset of technological disruption, asset management on behalf of companies and landlords has become more challenging, even as spaces evolve as well. To keep pace, more companies are embarking on a fast-fail strategy, setting up temporary project groups to test and manage new products, and quickly disbanding if the idea fails to pick up traction.

Housing the project team becomes a question of necessity, especially if the company is embarking on an asset-light strategy. The consideration then becomes one of careful space allocation and mapping, to ascertain the right amount of flexible space required, vis-a-vis the space set aside for core operations.

From the landlord perspective, the need for dedicated spaces to accommodate flexible uses throws in a new aspect for deliberation, on its viability and feasibility for the long term. In addition to increased responsibility and, possibly, resources to manage the co-working space, landlords will also have to account for the higher volatility of rental incomes in lieu of the shorter leases for tenants, who may also come and go unpredictably.

What's next?

Technology is fast shaping the every day, to impact not only the consumer but also the changing needs of corporations. The role of asset managers is set to expand in difficulty and importance, as new uses come into play to affect the value and costs of maintaining a property.

Individual owners may then find it tougher to manage their property solo, as the lack of economies of scale to adopt relevant technology for improvement and the lack in breadth of experience may detract from the ability to effectively stay ahead. With more new asset types such as co-living spaces being formed through the sharing economy, the outlook for the asset management industry is a very bright one indeed. W