How Hong Kong businesses manage property portfolios impacts the bottom line

With competition from mainland and region, how firms manage property affects bottom line

PUBLISHED : Wednesday, 22 January, 2014, 4:34am
UPDATED : Wednesday, 22 January, 2014, 4:34am

Over the last 15 years Hong Kong has successfully positioned itself as the gateway to China, leveraging its mature legal system, East-meets-West style business practices and skilled workforce.

Limited competition, exclusive licences and expensive barriers to entry have resulted in profitable businesses and negated the need to radically restructure, modernise work practices or significantly reduce operating costs.

However, Hong Kong businesses today are facing a tougher challenge than before, with stronger competition for market share from South East Asian countries and the mainland's free-trade zones. Such competition is leading to uncertainty, volatility and declining revenue at a time when operating costs, especially labour, continue to rise.

Continuing to adopt the practices of the past will no longer provide the competitive platform necessary for the future. New and innovative approaches will be required if Hong Kong businesses are to become more effective and continue to grow.

Property portfolios are typically the largest operating cost after staff. The way they are managed offers Hong Kong businesses significant opportunities to improve efficiency levels, reduce operating costs, increase profit margins and better support their objectives.

The type, location, condition, appearance and functionality of property also impacts on staff productivity, the customers' experience and their propensity to purchase.

The way in which the retail environment has re-invented itself due to the emergence of online shopping is one example of how additional competition and new market conditions can also drive innovation within a real estate portfolio.

A key first step when it comes to optimising a property portfolio is to measure and fully understand the existing performance and how this compares with the rest of the market and best-in-class international examples. Determining the extent to which built assets support the core business and provide a competitive advantage is crucial.

The next step is establishing new performance targets and developing the plan necessary to meet those goals. Many property and asset managers will not have faced this kind of challenge before and may need support in implementing a transformation programme of this scale.

Ageing portfolios, long-term leases and lack of representation on company boards are additional challenges facing property management teams. However, these are also areas where fresh thinking can help to bring about better results.

We find that companies that have succeeded in transforming their built-asset portfolio tend to follow a common series of steps that unlock value, increase revenue and significantly lower operating costs. These include:

  • measuring current performance of built assets in terms of space utilisation, total cost of ownership, operating costs, the effect on profits and losses (P&L), and overall customer satisfaction;
  • benchmarking internally across the portfolio and externally against competitors and best-in-class organisations both locally and internationally in order to determine whether there are performance gaps and develop a plan to close such gaps;
  • developing an intimate understanding of the core business and in particular why customers make buying decisions and define how property can support/enhance such decisions;
  • developing relevant key performance indicators to measure the effect of property on customers, staff, P&L, and potential risk;
  • standardising, simplifying, and optimising property operating procedures together with improved procurement and supply chain management to reduce cost and improve service quality;
  • developing a culture of innovation and continuous improvement; and
  • staying fully connected with boards and regularly sharing achievements and performance against the plan, as well as communicating this with relevant stakeholders to add further momentum to the company's transformation.

The world is changing fast, bringing new challenges and requiring businesses to adapt. Successful companies will be those that recognise this and embed modern real estate asset management into their practices. Doing so will help them realise significant competitive advantage as they prepare for future challenges.

Andrew Macpherson is a partner at EC Harris, a global consultancy