Companies that failed to hike up revenue can protect their bottom line by cutting their costs. In the same way, property owners who are experiencing falling rents and capital value can maintain their returns by trimming on their operating costs. According to EC Harris, an asset consultancy firm, a rising number of its clients are striving to improve the operational efficiency of their buildings.
Less than 20 percent of its clients were interested in operation efficiency before the economic turmoil, but around 70 percent are now keen, says Richard Marriott, leader of lenders and investor sector of EC Harris across Asia.
Mr. Marriott said that 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.”
The clients of EC Harris include pension funds and private equity funds invested in property, and the firm gives advice on ways to trim the operational costs of the buildings.
According to Mr. Marriott, the cost of operating a building can be reduced by up to 30 percent simply by improving the lighting, air-conditioning and other systems.
Property owners can keep hold of these savings or pass them on to occupants, he said. Doing the latter helps owners retain and attract tenants, as well as 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,” said Mr. Marriott.
Although the economy of Singapore is gradually returning from the downturn, some parts of the property market are still some way off recovery. Real estate investment trusts (REITs), in particular, must explore ways to keep stable payouts, as rents slide or stay flat.
It is likely that commercial landlords will be facing more pressure. Property consultancy firm DTZ expects that Singapore’s office rents will 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.”