The recent torrent of bad news from British high streets has prompted any amount of pessimistic rumbling, both in the property management industry and beyond.
Ballooning business rates and the hangover of peak-market leases have seen closures and downsizing amongst even seemingly robust brands.
Many market commentators have called disaster, foreseeing a fundamental shift in how our commercial spaces are used. But the truth is that the only fundamental in retail and hospitality is that humanbeings find shopping, eating and drinkingto be experiences worth paying for.
Other than that, these sectors are alwaysin a state of flux, and that is how it shouldbe. They are two of the most dynamic and vital sectors in the economy – in many ways a potent demonstration of how a free market should work.
Currently we’re seeing an adjustment in how commercial properties are valued and managed, and that is intensifying the action of market forces. But brands with a distinctiveoffer and sound management willweather these conditions.
So what of facilities management? Is there scope for the management of property and estates to make an impact when the fundamental problem is that properties just cost too damn much?
It certainly isn’t a case of indiscriminate cost-cutting. That’s an ill-informed approach, and the bottom line can’t ever be improved by looking at what will be spent tomorrow, or even next week. The shortest possible timeline is 12 weeks – that’s enough time both forpositive measures to take effect, andfor the negative impact of an ill-judged approach to become clear.
But the ultra-short-term reaction is understandable. When the economic environment is threatening, it’s natural to react in an emotional way. Even experienced executives – especially experienced executives – will make decisions based on what ‘feels right’, not what is objectively correct.
So how should organisations make proactive and effective decisions when faced with a softening market and in flexible property costs?
Well, the first thing to realise is thatproperty costs are rarely what theyfirst appear to be.
And, the second is that, once property costs are examined in the round, they arerarely as inflexible as they might seem.
The vast majority of organisations look at property and maintenance costs separately. Energy and utility costs arecounted separately again, and staffingcosts another separate dataset. These costs are then again held separately from data on capitalisation, property P&L, and property organisational strategy – an immediate psychological obstacle.
Another is reluctance to bring operationaldata together with financial data. That’soften seen as the realm of accountants who, even if they were to bring operational data sets into their thinking, would not necessarily have the technicalknowledge to interpret it effectively.
For example, variation in energy and utility costs across sites of a similar size and type can be substantial. The potential culprits are generally quite simple – water leak, outmoded lighting, inefficient HVAC, poor building shutdown, and a few other possibilities –that requires both financial and engineering knowledge to identify them confidently.
Equally, maintenance costs can vary hugely across an estate – and again the reasons for that tend to be pretty simple. The tolerance (or otherwise) of site-level management for minor imperfections in the building, the scheduling (or otherwise) of such minor repairs, and obsolete or outmoded (and hence unreliable) assets account for the majority of variation inmaintenance costs. And, once identified,all these challenges are easily and cheaply addressed.
Each of these particular inefficiencies may seem insignificant, but theyearly cost is often anything but. In fact, in a large estate with variable profitability, it’s likely that something in the region of 20% of sites will be of borderline profitability.
In most of those sites, it’s likely that there is an engineering solution, or combination of solutions that could return the site to break-even or beyond. Where that can take the form of a capex investment that can be depreciated across seven years (as is usually thecase) the benefit will be apparent within the 12-week period.
Of course, all of these options rely on accurate and up-to-date data, which can be a challenge in itself. But assuming the processes and systems are in place to capture and manage the data, analysis along these lines can offer a route to profitability for marginal sites. It won’t save anything severely loss-making but, if applied to, say, 100 sites that are consistently close to break-even, the process can totally transform the look of a financially challenged estate.
Senior executives may not see this work as properly the realm of facilities management. Indeed many facilities management providers may not see this as work they could confidently undertake. Data analytics in property is still very much in its infancy.
But while the skill set is still rare, where it exists at all, it only really exists in facilities management. The methodologyis proven and effective. The need isclear and the appetite is strong. What’s needed is investment in skills, and a realisation that the right analysis has the potential to draw property management into a genuine alignment with the organisation’s business objectives.