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Despite valuers remaining defiant, most market intelligence points to an imminent dip in commercial property valuations. REITs, unlisted property funds, superannuation funds and other commercial property owners are bracing for a significant market correction that is likely to hit their office and retail portfolios hard. In the context of the US, Morgan Stanley estimates office and retail property valuations could fall by as much as 40%, as the market confronts a $US1.5 trillion wall of commercial property debt due to roll over in the next 20 months. Europe and Asia are facing similar realities. With global inflation and other macroeconomic factors placing relentless pressure on the cost of outgoings, owners should prioritise measures that trim operational costs. This will protect NOI, counter the impact of higher cap rates and boost resilience. In this article, we explore a piece of the asset performance puzzle that is often overlooked - supply chain productivity. This builds upon an earlier article in which we proposed strategically re-prioritising sustainability and tenant satisfaction as foundational means to counter these market disruptions.
High-performing teams boost profit margins
The industry problem seems less about income than outgoings, with industry reports signalling strengthened gross effective office rents and an increase in retail sales. As such, attention must turn to boosting output via a supply chain that is effective, productive, aligned and collaborative. That is, curating an operational workflow that delivers more with less. As an example, it is commonly advised in digital transformation (DX) projects that 80% of effort should be dedicated to people and their soft skills, with only the small remainder on the technology itself. This is commonly misunderstood, resulting in a 70% failure rate for DX projects. The same applies in the broader context of commercial property operations, where people are a critical driver of profitability. This is two-pronged; the labour costs associated with maintaining operations teams are significant, and their level of productivity directly influences asset performance.
For an unnamed global facilities management company, annual labour costs for hard services team members are estimated at a whopping USD$2.8 billion. Boosting the output of these team members is essential if these costs are to be justified; strategies that equip teams with the right tools, technology and skills should be front and centre. Analytics software, for example, enables data-driven facilities management centred around a more collaborative workflow. Analytics software has the potential to boost productivity across each of the focus areas that current FM roles are typically structured around: fault detection and diagnosis (FDD), operational and environmental reporting, OH&S and soft services. Streamlining workflows across these areas of responsibility boosts productivity, thereby freeing up capacity and delivering efficiency wins. In our webinar on ‘Maximising tenant satisfaction’, Lisa Atkins, Knight Frank’s Head of Asset Management Services highlighted the importance of controlling outgoings,
"With the inflationary environment that we're in right now, costs are a real issue. Everyone's working on their budgets right now, and it's an absolute shock to the system when we see what inflation is doing to the cost of operating a building. So we can't allow outgoings to blow out to a point where people will reduce their requirements or relocate."
There are also opportunities to reap productivity gains in the work of specialist contractors. The costs associated with BMS, mechanical and other contractors present an equally significant balance sheet burden. In a recent case study, an HVAC technician identified some of the blockers undermining his ability to remain responsive and productive while on-site, many of which result from preventative maintenance schedules leaking hours checking plant and equipment that is fully functional. Report-writing is another area of frustration, “it’s an hour of my day where I have to prove I’ve done something, otherwise I’m just the guy that sits in the computer up in the plant room. No one knows what I’m doing so I have to write a report.” Initiatives that address these pain points will make time on-site count, enabling contractors to do more with less.
Tips to improve operational productivity
Leverage data-driven maintenance (DDM)
DDM involves the use of an analytics engine to guide operations teams as to when and where maintenance and repairs are required. It aligns HVAC contracts with relevant data sets, differing from preventative maintenance which relies on costly scheduled inspections. By optimising maintenance efforts, DDM:
- Reduces onsite maintenance hours and cost;
- Improves plant operation and extends lifecycle
- Utilises building’s data to identify inefficiencies and incorrect operation;
- Prioritises necessary maintenance work over routine checks; and
- Evaluates contractor performance against target KPIs.
Minimise noisy distractions
In the chaotic and dynamic world of property operations, it’s important to keep teams laser-focused on the jobs that matter most as an effective way to drive productivity. A building management system (BMS), for example, displays dozens of alerts often without indicating how they are connected, which tasks are high priority, or what actions should be taken to resolve them. It’s little wonder that these alerts can quickly snowball into data overload or “BMS alarm fatigue”, impacting the site team’s ability to manage the building efficiently. One solution is again offered by the use of analytics software, which prioritises alerts and offers a platform for their resolution. When facility teams know precisely where and how to take action, efficient and cost-effective operations soon follow. We recently ran the numbers to quantify the relevance of our PEAK Platform alerts versus noisy BMS alarms, finding less than 1 in 13 are muted by users.
Equip teams appropriately
Empowering operations teams via the right tool kit is essential. Perhaps the most important resource is one that enables open and ongoing communication. The right communication tool should be centralised, so as to minimise disparate conversations about the same issue happening across multiple channels. It ought to preserve a comprehensive digital record of all remarks, screenshots, images, and documents associated with an issue to guide future decision-making. The tool should be mobile-friendly for remote collaboration and user-friendly for all internal and external stakeholders involved in property management, regardless of their technical expertise. It should either complement or consolidate the existing infrastructure, such as the BMS, CMMS, EMS, and property management software.
This creates an ‘always-on’ collaboration system that promotes ongoing knowledge exchange and problem-solving, rather than over-reliance on monthly meetings. Numerous studies indicate that the issue of unproductive meetings is more prevalent than ever, with 83% of employees stating they spend up to a third of their workweek in meetings. Each month, 31 hours were reported as spent on unproductive meetings. Tools that empower teams to close out items between recurring meetings ensure these remain as pointed as possible, further boosting productivity.
Adopt AI-driven continuous monitoring
Technology is a huge enabler for operations teams to work smarter and be more productive. The need for time-consuming manual checks is largely negated through the use of an analytics solution like the PEAK Platform that continuously monitors all plant and equipment, backed by rules-based FDD capability to pick up on faults and anomalies. This frees up FM teams to invest more of their time in higher value customer-facing activities that drive more strategic priorities like tenant engagement. Continuous intelligent monitoring also enables remote oversight and the ability for FM’s to manage multiple sites. The end result of a technology-enabled team is an improved workflow that is optimised, efficient and productive.
Curate diversity
Property operations is a challenging discipline that demands adaptability, analytical mindedness, empathy, interpersonal skills, openness to technology, leadership and more. Add to this the specific technical expertise required to maintain a building, and the full skillset is vast. It’s unreasonable to assume that any one individual will possess all of these traits, so the trick is to curate a team whose capability is balanced and diverse. This supports a productive working dynamic, as each individual’s skillset complements the next and fulfils a clearly defined role. This is backed by research, which shows that diverse teams are better at making decisions 87% of the time over non-diverse teams, while cognitive diversity is estimated to enhance team innovation by up to 20%. Varun Nair, General Manager for Operations and Environment, explained this in the context of Scentre Group in our webinar on ‘The Evolution of the FM Function’:
“We can't expect to get broad technical skill sets on every single one of our people. So the mission for us has always been, how do you get that balance? You do need that technical knowledge, you do need that soft skill set, excellent contractor and business partnering skills, tenant and customer engagement. We almost want all of this, but it's not possible in one person perhaps, or very few FMs are able to bring all of that together. So we try to get that balance within the team, between teams, and supported by regional leaders and technology”.
Closing
The imminent dip in commercial property valuations demands a proactive approach to preserving profitability. By focusing on supply chain productivity, property owners can effectively trim operational costs, protect NOI, and build resilience against ongoing market disruptions. Strategies that emphasise data-driven maintenance, fewer distractions, equipping teams with the right tools, and cultivating diverse teams will enhance efficiency and productivity. By prioritising these measures and fostering a collaborative working environment, commercial property owners can successfully navigate the challenges posed by falling property values and maintain a strong footing in an ever-evolving landscape.
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