Raise buildings’ efficiency to boost returns

More property investors striving to cut operating costs, says EC Harris

COMPANIES that fail to boost revenue can cut costs to protect their bottom line. Similarly, property owners faced with falling rents and capital value can trim operating costs to maintain returns. Asset consultancy firm EC Harris says a growing number of its clients are looking to improve the operational efficiency of their buildings as parts of the property market stay soft.

Fewer than 20 per cent of clients were interested in operation efficiency before the economic downturn, but about 70 per cent are keen now, says Richard Marriott, leader of EC Harris’s lenders and investor sector across Asia.

In the years running up to the financial crisis, ‘the property bubble had grown to such an extent that people were really only focused on capital growth, and nobody really looked at operational efficiency’, Mr Marriott said.

EC Harris’s clients include private equity funds and pension funds invested in property, and the firm advises on ways to cut buildings’ operational costs.

Simply by improving air-conditioning, lighting and other systems, the cost of operating a building can be reduced by up to 30 per cent, says Mr Marriott.

Property owners can retain these savings or pass them on to occupants, he says. Doing the latter helps owners attract and retain tenants, and secure an income stream.

‘If investors understand what tenants are driving at, and their office space allows tenants to operate in a particular way, they’re going to attract more tenants,’ Mr Marriott said.

Although Singapore’s economy is gradually emerging from the doldrums, parts of the property market are still some way off recovery. As rents stay flat or slide, real estate investment trusts (Reits), in particular, have to explore ways to maintain stable payouts.

Commercial landlords are likely to face more pressure. Property consultancy DTZ expects office rents here to recover only in 2011, ‘although recovery at end-2010 is plausible if the economy grows more strongly than expected and more existing office buildings are redeveloped’.

Source: Business Times, 28 Dec 2009