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Building the business of tomorrow 2018 Commercial Real Estate Benchmarking Report

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XBuilding the business of tomorrow

2018 Commercial Real Estate Benchmarking Report

2Building the business of tomorrow 2018 Commercial Real Estate Benchmarking Report

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1 Welcome2 About the research3 Key findings4 Financial performance5 Sales6 Leasing and property management7 People8 Operations and technology9 Outlook

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Welcome


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Insights for building the business of tomorrow

We’re pleased to bring you Macquarie’s Commercial Real Estate Benchmarking Report. Industry benchmarking is a valuable tool for uncovering drivers of outperformance and identifying industry best practice, which we hope you can put to work in your own business. Macquarie Business Banking has been specialising in the real estate sector for more than 30 years and benchmarking industry performance for almost a decade.

Macquarie Business Banking

1 IBISWorld industry report March 2017 Commercial Real Estate Agents in Australia

The financial year ending June 2017 (FY2017) was a buoyant year for commercial real estate, capping off five years of growth1. The majority of agencies reported increased revenue and profits, underpinned by organic growth in property management fees.

However, there are still risks in this sector. As well as significant differences between markets in Australia, the sector also looks set to be increasingly impacted by new technologies, creating both threats and opportunities. As a result, agencies that focus exclusively on growing profits today may be neglecting the very investments they need to ensure a sustainable future.

In this report, we combine our research findings with perspectives on the trends shaping the industry’s future. We hope you find it valuable, and look forward to the opportunity to discuss our findings with you further.

1


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Participant profile

About the research

Conducted in December 2017, our survey captured the views of 77 business owners and principals from commercial real estate businesses across Australia. They represent a broad cross-section of businesses, including franchises and independents. This is an increase in participation since our last benchmarking survey of the commercial real estate industry in 2012, with improved participation and spread across all states and capitals.

2

Location

QLD

11%NSW

30%ACT

4%VIC

27%SA

9%

WA

19%


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Participant profile

About the research

6-10 years

11-15 years

23%

22%

16-20 years 14%

Over 20 years 28%

5 years or under 14%

Length of operation

Part of franchise

34% Franchises

Business size

46% ≤ 10 employees

54% > 10 employees

2017 business revenue

43% Under $1.5m

57% Over $1.5m

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Technology and the business of the future

Context

In 2012, an agenda setting report, Short fuse, big bang,2 identified real estate as one of the sectors most likely to be transformed by digital technologies. In 2017, KPMG and Real Tech Ventures found that global investment in real estate technology increased 1,200% between 2012 and 2016, from US$221 million to US$2.6 billion – and is forecast to reach US$20 billion by 2020.3

Our survey shows many commercial real estate agencies acknowledge this threat, but relatively few are investing strongly in the digital foundations that could enable them to increase efficiency and automate repetitive tasks.

2 Deloitte, Digital disruption: Short fuse, big bang?, 2012.

3 KPMG and Real Ventures, Real Estate Technology Threat or Opportunity?, 2017.

Source: Deloitte, 2012

Accommodationand food services

Wholesale tradeManufacturing Mining

Utilities

Government servicesAgriculture

Recruitment and cleaning

Health

Education

ICT and media

FinanceRetail trade

Professional services

Arts and recreation

Transport and post

Construction

Timing (Years)Im

pact

(% C

hang

e in

bus

ines

s)1

0

10

20

30

40

2 3 4 5

32% of the Australian economy 33% of the Australian economy

Short fuse: Small bang17% of the Australian economy

Long fuse: Small bang18% of the Australian economy

Long fuse: Small bangShort fuse: Small bang

Real estate

41%believe technological advancement will be one of the biggest impacts on their business over the next three years

20%of businesses invested more than $50,000 in technology over the past 12 months

The impact: short fuse, big bang

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Market outlook

Context

Sources: Macquarie Securities research, CBRE Research, 2018 Asia Pacific Real Estate Outlook

OfficeIn 2017, face rents have increased 6.8% nationally, with available sub-leased office space declining to 1.1% of total stock (down from 1.6% at the end of calendar year 2016). This has been driven by mining related tenants in Brisbane and Perth looking to take back space previously classified as sub lease. Sydney and Melbourne are continuing to report strong increases in net effective rents; Brisbane and Perth are experiencing a bottoming of net effective rental growth reductions, albeit significant growth likely later dated. Moderating vacancy is now a national trend, with all capital cities reporting a reduction in vacancy. Rental growth momentum has continued in Sydney and Melbourne with average effective rents rising in prime CBD, while Brisbane and Perth showed decline in prime effective rents.

RetailRetail could see more favourable outcomes in FY18 with consumer confidence at highs not seen since 2013. 86% of larger retailers anticipate positive sales over the coming 12 months. Bricks and mortar assets are unlikely to see a bounce in value, but rather turn the corner on cyclical headwinds previously experienced. Vacancy levels will slowly decline in the space along with a supply pipeline that should continue to moderate. There is also a forecasted increase in household income growth, albeit sluggish for the next year. Regional assets have seen an increase in interest due to the higher returns available. Amazon’s arrival in Australia will also amplify online competition in the retail sector- however it’s arrival with a limited range will take time to take market share. Trends also show 23% of all retailers will seek rent reductions, and shorter term leases.

Industrial2017 saw solid growth in the transport and warehousing sector in Melbourne and Sydney, although other markets remained more subdued. However, continued growth is expected in 2018, driven by high-tech manufacturing. And as retail and industrial operations become increasingly aligned, omnichannel real estate is emerging as a key trend. While 2017 saw solid rent growth in Sydney and Melbourne due to softer levels of supply and sustained demand, increased supply in Sydney in Brisbane will see softer rent growth in 2018. Perth’s rents are also due to contract in 2018, albeit at a lower rate than 2017 in line with the relatively weak industrial economy.

ResidentialIn December 2017, Macquarie research suggested tentative evidence of a stabilisation in national dwelling prices. Recent data has confirmed this thesis, with modest price declines in Sydney (albeit at a slower rate) and Brisbane offset by growth elsewhere. We expect national dwelling prices to be relatively flat to a little higher over 2018. A bounce back in housing price growth similar to that experienced in 2016 appears unlikely given interest rates were cut further through that period. Rebounding investor activity also appears unlikely amid heightened regulatory scrutiny. The level of new housing construction is also likely to remain high through much of 2018. Building approvals have rebounded and history suggests that housing demand is unlikely to weaken until interest rates move higher.

3

The growth cycle for commercial real estate is anticipated to continue, with IBISWorld predicting annualised growth of 1.9% through to FY2022. Additionally, according to Roy Morgan research, business and consumer confidence rose above historical averages at the start of 2018. Hopefully, this bodes well for the year ahead.Sources: IBISWorld, Commercial Real Estate Agents in Australia, 2017, Roy Morgan Business and Consumer Confidence Survey, January 2018


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Key findings

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Conditions are improving

Key findings

The commercial real estate sector continued to strengthen in FY2017, driven by organic growth in property management fees, despite tough competition in commercial sales listings. Seven out of 10 agencies reported higher revenues and profits, with 82% forecasting growth to continue. The challenge now is to use these improved conditions to build a platform for sustainable growth.

7 out of 10 have lifted revenue and profit

82% anticipate further revenue growth in FY2018

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Property management underpins growth

Key findings

At a time when intense competition for limited stock has put pressure on sales commissions, property management has cemented its position as both a reliable income stream and as a source of new sales and leasing opportunities. 86% of agencies expected property management fees to drive revenue growth in FY2018 and were actively building their property management capabilities — hiring staff, buying rent rolls and competing for clients.

But as competition intensifies, agencies will have to work harder to win new clients. They also need to remain vigilant to the threat of disintermediation.

Income per tenancy

$4,267

of those whose revenues grew attributed their growth to property management fees38%

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People are critical to success

Key findings

Across the industry, there is a clear recognition that high-quality staff are the key to building strong client relationships that underpin sustained success.

As a result, competition for skilled staff has intensified, with high-performing agencies strongly focused on finding, motivating, developing and rewarding highly capable staff.

70% agree maintaining and developing relationships are a key driver of profitability

say retaining quality staff is critical to profit growth64%

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Higher profits through enhanced productivity

The high performers

In this report, we define ‘high performers’ based on two characteristics: profit growth of 20% or more, and a high level of confidence in their ability to adapt to change.

The high performers in our survey included businesses of every size in every region. While they tended to generate higher revenues than their peers, their performance was not driven by scale alone. Instead, what made them stand out was the productivity of their staff, underpinned by highly efficient processes, powered by technology.

Driving higher profits through enhanced productivity

All businesses High performers

Average number of staff (excluding principles) 13.9 14.2

Average gross revenues $2.29m $2.64m

Average profit $522,399 $803,322

Average revenue per staff member $164,687 $186,036

Average profit per staff member $37,583 $56,572

Average profit margin 24% 33%

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Financial performance

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2017 delivers strong results


For most businesses, FY2017 saw a return to better times after a lacklustre FY2016, with 70% of businesses reporting revenue growth. Overall, median revenues rose more than 10% on the previous financial year. Healthier revenues translated to higher profits, with 70% of respondents reporting profit growth and the average profit margin of 24%.

Larger businesses (those with more than 11 staff, excluding principals) leveraged economies of scale to make the most of improved conditions, reporting higher profits (average $617,354) and higher margins (median 22.7%) than their peers. However, they were eclipsed by the efficient high performers in our survey, with average profits of $803,322 and margins of 33%.

Average revenue in FY2017 All businesses

$2.29mHigh Performers

$2.64m

Average profit in FY2017All firms

$522,399High performers

$803,322Sources of revenue

17% 25% 62%9%6%5%

Residential salesResidential propertymanagement fees

Other* Leasing Commercial SalesCommercial propertymanagement fees

Change in profit margin FY2016 to FY2017

14% 27% 10% 18%9%5% 6% 5% 6%All 2017

Decreased 30%+ Decreased 20-29% Decreased 10-19% Decreased 1-9% No change

Increased 1-9% Increased 10-19% Increased 20-29% Increased 30%+

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Commercial property management drives growth


Commercial property management fees were the largest contributor to revenue growth in FY2017, highlighting their importance as a generator of consistent cash flows and sustainable client relationships.

While commercial sales were the second largest contributor to growth, they were also the main reason for lower revenues among the 24% of businesses who reported a decline.

While this could reflect market conditions in different states, moreover, it is a reflection of the volatility and impact of sales as a revenue line.

Reasons for revenue change

38%

0%

Businesses that saw revenue INCREASE FY16-17 Businesses that saw revenue DECREASE FY16-17

Commercial propertymanagement fees

Commercial sales

Leasing

Residential sales

Residential propertymanagement fees

Other

36%

63%

11%

26%

6%

11%

4%

0%

2%

0%

4


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Existing clients and referrals boost profits


Organic revenue growth from existing clients and referrals was the main driver of profit growth in FY2017.

Interestingly, 70% of businesses agreed that maintaining and developing relationships had the highest impact on their profitability, rising to 80% among high performers.

44%

15%

11%

7%

6%

6%

6%

4%

2%

Reasons for profit increase

Organic revenue growth

Increase in marketing and sales activity

Improving market conditions

Efficiency improvements

Acquisition of another real estate agency

Cost cutting – staff and staff overheads

Employment of new staff

No reason in particular

Other

4


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Expense and profit profile


Salaries remain by far the largest single expense line, highlighting the importance of maximising your return on investment in skilled staff with strategies to boost retention and productivity.

On average, high performing businesses spent 36% of revenue on salaries, compared to 39% among other businesses. This indicates willingness to invest in high performers, which may aid retention.

Salaries Sales commissions IT/Comms Marketing and business generation Net vendor advertising

Training and HR costs Rent and premises Interest and bank charges Other Profit

Expense and profit profile

6% 8% 24%15%39% 2% 2% 2%All businesses

4% 9% 33%12%36% 2%Benchmark

4


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1.

Focus on productivity. The best performing businesses had higher productivity, with each staff member generating an average of $56,572 in profits.

− Measure revenue per staff member

− Measure profit per staff member

2.

Educate, empower and incentivise staff. High performing businesses were more likely to say incentivising and motivating staff has a significant impact on profitability (28%, compared to 15% of other businesses).They were also more likely to implement concrete strategies to drive better performance.

3.

Build relationships by creating a high-quality client experience. High performers had their staff focussed on building and maintaining strong client relationships. 80% said maintaining relationships had a significant impact on profitability, and 36% said that creating an excellent client experience was essential (versus 27% of other businesses).

Optimising for best results

Best practice

4

Average revenue per staff member Average profit per staff member Average profit margin

Revenue and profit by employee

$164,687

$37,582

24%$186,036

$56,572

33%



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Sales

5


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Activity picks up

Sales

FY2017 saw sales activity pick up for many agencies, despite steep competition for listings in a number of states. Almost half (46%) reported a rise in listings from the previous financial year, with a median of 60 listings and 27 sales per business. Almost two-thirds of businesses (62%) achieved more than 20 sales, while 38% recorded more than 50 sales. On average, just under half of sales were for under $1 million.

Among the businesses sampled, industrial property accounted for more than a third of sales nationally (36%), evidence of the growing focus on logistics and distribution centres, driven by internet retailing.

10-19

20-49

50-99

100-199

200+

15%

25%

18%

18%

1%

0-9 24%

Number of sales per business

< $500,000$500,000 -$999,999

$1,000,000 -$2,499,999

$2,500,000 -$4,999,999 $5,000,000 -

$9,999,999$10,000,000 -$20,000,000

> $20,000,000

Share of sales per price range

4% 4%30%17% 27% 12% 8%

Industrial sector Retail sector Office sector

Development sites Other (eg hotels)

Sales by sector

36%

22%

22%

16%

5%

5


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Spotlight on sales to overseas investors

Sales

Despite ongoing media and regulatory attention, the impact of overseas investors remains limited. Only 4.7% of sales were made to overseas investors in the past 12 months. 55% of agencies reported no sales to offshore buyers, and only 8% said that international sales made up more than 10% of transactions, with Chinese buyers accounting for 84% of overseas sales.

Increased Stayed the same Decreased

Change in international investmentover the previous 12 months

19%

65%

16%

0% 1-10% 11%+

Percentage of sales to international investors

36%55% 8% Average: 4.7%

Singapore

Hong Kong

Malaysia

Other

29%

29%

26%

6%

China 84%

Countries of origin(multiple responses permitted)

5


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Conversion rates, productivity and sales strategies

Sales

Across the industry, around half of all listings in FY2017 resulted in sales, however there were differences between businesses. High-performing agencies have almost double the median number of listings and a higher conversion rate (55% versus 50%), achieved with fewer staff per listing and per sale. As a result, their sales staff are more productive, with a median of 15 sales per staff member, versus 12.6 for all businesses.

While this partly reflects the strength of the markets in which they operate, it also results from the sales strategies they employ. High performers are less likely to sell by private treaty and more likely to sell by auction, off market or by expressions of interest.


Per business

Median listings 60 100

Median sales 27 53

Median conversion rates 50% 55%

Per sales staff member

Median listings 25.3 33.3

Median sales 12.6 15.0

Median conversion rates 50% 55%


Private treaty 51% 46%

Auction 20% 21%

Expression of interest 9% 14%

Off market 14% 15%

Project sales/off the plan 6% 4%

Sales strategies

Sales conversion rates (listings to sales)

5


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Discounting commissions to capture listings

Sales

While our research shows a long-term trend of static sales commissions, that’s not the full picture. Our recent experience is that many agencies have taken advantage of rising property values to offer commission discounts while maintaining overall revenue, helping them capture listings in intensely competitive markets with limited stock.

Sales commissionsAverage commission rate

1.97% 2010

2.12% 2012

2.10% 2017

5


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How to drive more profitable sales

Sales best practice

Focus on productivity − Define roles to leverage strengths

− Measure revenue per staff member

− Measure profit per staff member

− Know your cost per listing

− Focus on listing-to-sale conversion

− Measure time invested versus return

− Measure and incentivise client facing activities that add value

Lift commission income − Deliver a premium service and charge for it

− Create clear market differentiation

− Focus on listings that align with business value proposition

− Invest in technology to improve the client experience

Engage and empower your sales force − Provide role clarity and set clear performance indicators

− Hold regular performance and development reviews

− Reward success promptly

− Enable staff with digital technology

− Automate and outsource low value activities

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Leasing and property

management6


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Transactions increase

Leasing

While leasing accounted for an average of only 17% of revenues in FY2017, it continues to be important as a reliable source of transactional income and an opportunity to create organic growth in the property management business. So, the recent rise in leasing activity is good news.

High-performing businesses had substantially higher leasing rates than their peers, with an average of 88 new tenant transactions (versus 62 for all businesses) and 91 renewals.

Our research also shows strong cross-referral opportunities from property management to the leasing team, with 53.8% of renewals and 51.8% of new tenants sourced from the rent roll.

Change in leasing transactions FY2016 to 2017

48% Increased

38% Stayed the same

21% Decreased

6


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The growth story continues

Property management

Now firmly established as an essential ingredient in most commercial real estate businesses, property management continues to provide steady incomes, cross-referral opportunities and strong growth prospects. Around three in four agencies said they had increased tenancies under management between FY2016 and FY2017, to an average of 222 properties and 393 tenancies per business.

1-50 51-100 101-150 151-200 201-250 251-300 301-400 401-500 500+

Properties under management FY2017

8% 8% 6% 11%25%15% 14% 7% 6%Properties

11% 10% 7% 25%8%11% 5% 14% 10%Tenancies

Median 140 Average 222

Median 270 Average 393

Properties

Tenancies

6


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Rising rents drive higher incomes

Property management

While property management commissions have remained largely stable since our report in 2010, businesses have more than doubled average incomes per tenancy during that time, on the back of swiftly rising rents. The reduction in the average number of tenancies per manager from 141 to 102, creates the opportunity to improve client service and build stronger and more enduring relationships.

Meanwhile, high-performing businesses are leveraging the greater productivity of their staff, with an average portfolio of 123 tenancies each, to offer more competitive rates. Income per tenancy may be lower in these businesses, driven by more competitive commissions, but with a broader base of tenancies, these businesses can cover the gap.

Average property management commissions, income and tenancies per manager

FY2010 FY2012 FY2017 All businesses

FY2017 High performers

Gross property management income $1,125,738 $1,311,760

Commissions 4.28% 4.22% 4.30% 4.10%

Median tenancy income per property manager $2,300 $2,036

Tenancies per property manager 97 141 102 123

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How to build relationships and boost income per tenancy

Property management best practice

Get the platform right − Review and optimise process – streamline and remove duplication

− Invest in or adopt digital solutions that automate administrative tasks

− Consider the structure and roles of the team to be optimally efficient

Diversify and add value − Test and improve your client experience – responsiveness, service standards, value

− Understand your client’s needs – how else can you serve them?

− Consider your target market – how can you maximise your income per tenancy

Prepare for a changing market − Put your black hat on – what would you change if you were going to disrupt yourself?

− Focus on productivity and operational efficiency

− What other markets are adjacent to yours and how could you enter them?

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People

7


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Getting the right mix

People

The businesses in our survey had an average of 13.9 staff (excluding principals), with a third in sales or leasing, and another quarter in property management.

High performing businesses tended to have more staff in frontline or sales support roles and fewer performing back-office tasks, suggesting they have successfully leveraged best practice processes for greater productivity.

Sales and leasing Property manager Accounts Other admin

Marketing General manager Valuers Other

Sales support

Staff profile

5% 4%2%25%33%

Sales 22% Leasing 11%

11% 13% 6%2017


Principals 2.1 1.8

Sale and leasing 4.6 5.2

Property management 3.4 3.7

Back office 6.1 5.3

Total (excluding principals) 13.9 14.2

Average number of staff

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Salaries and incentives

People

Performance incentives remain the norm for sales staff, with 78% of businesses paying a combination of salary and commission. High performers appear to have been more successful than other businesses in using non-monetary incentives to drive performance. Not only are they more likely to pay a salary only, but among those who pay commissions to sales staff the average rate is just 35.4%, more than seven percentage points below the norm.

Meanwhile property manager salaries have been rising, as businesses compete for talented staff. The average for those with less than five years of experience is $68,204, with their more experienced colleagues earning an average of $85,907 in FY2017.

Remuneration strategies: sales and leasingAll businesses High performers

Sales staff

Salary 7% 20%

Salary plus commission 78% 72%

Commission only 14% 8%

Average commission percentage 40.3% 35.4%

Leasing staff

Salary 18% 21%

Salary plus commission 68% 71%

Commission only 14% 8%

Average commission percentage 39.9% 35.7%

$50k-$59k $60k-$69k $70k-$79k $80k-$89k $90k-$99k $100k-$109k $110k+

Property manager salaries

Over 5 yearsexperience

37%22% 26% 11% 4% Average:

19% 10% Average:9%11% 14% 20% 17%

Under 5 yearsexperience

$85,907

$68,204

7


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Hiring intentions

People

Competition for skilled staff remains intense. In our survey, 64% of businesses said they were planning to hire more staff in the coming year, with high performers dramatically more likely to recruit (80%).

Those recruiting were overwhelmingly focused on finding more client-facing staff to drive revenue growth, including sales people (69%), property managers (56%) and leasing staff (44%).

Hiring intentions

64% Yes

18% No

18% Don’t know

7


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Retentions strategies

People

Exceptional people underpin strong client relationships and high-quality client experiences, so attracting and retaining them is critical. As a result, most businesses have a range of staff retention strategies either in place today or planned for the future.

Every business we surveyed had either taken steps to improve their culture (61%) or had plans to do so (39%). KPIs were another key area of focus, especially among high performing businesses. And staff development is set to be high on the agenda over the next 12 months, with around a third of businesses aiming to create development plans and implement a formal coaching program.

Currently in place Planned in next 12 months

Retention strategies

61%

39%

56%43%

31% 29% 29% 32%25% 27% 24%

32%

15% 17%

Improving theculture of

your business

Setting KPIsand conducting

regular staffreviews

Developingleadershipqualities in

your people

Producingeffective staffdevelopment

plans

Having astructured

trainingprogram

Implementinga formal

coaching andmentoringprogram

None ofthe above

7


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Tenure and turnover

People

The benefits of these strategies were clear when we measured staff tenure and turnover rates. Overall, the industry is remarkable for the long average tenure of its staff, at 5.2 years, especially given the continuing competition for skilled people.

<2 years 2-3 years 3-4 years 5-9 years +10 years

Staff tenure

Average:19%5% 27% 41% 8% 5.2 years

Staff turnover

10.3%

7


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How to attract, develop and retain high performers

Staffing best practice

Define your culture − Set and communicate your vision for the business

− Who and how you recruit

− How you lead

− The values and standards you expect

− Enable and promote flexible working practices that support diversity and inclusion

− Make collaboration and innovation a core part of your business

Lead with the right metrics − Prioritise client experience

− Understand the cost of doing business

− Build a cohesive team that understand the risks

− Focus on your local community

− Build value in personal and business brands

Focus on the right KPIs − Remunerate fairly and incentvise performance aligned to performance measures

− Provide long-term incentives

− Offer client service incentives

− Measure and reward profit per employee

7


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Operations and technology

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Change is on its way


With investment in property technology (‘proptech’) booming, digital innovation and high-tech disruptors have the potential to transform the commercial real estate industry. Yet while agencies have been quick to adopt sales tools like mobile-friendly websites (69%) and social media (67%), many feel unprepared for more far-reaching innovation, with 41% saying they should be doing more or were at risk of falling behind.

High-performing businesses were the most confident, with 80% saying they were keeping pace with industry changes. Nonetheless, high performers invested just 1.5% of revenues in IT and communications in FY2017, suggesting that many may be focusing on short-term profitability rather than long-term sustainability in an evolving market.

Current use of technology

Have mobile friendly website

Active on social media – egTwitter, Facebook, LinkedIn

Cloud based (online) systems thatenable workplace flexibility

Use search engine optimisationon your website

Collaborate with clients usingonline software

None of these

69%

67%

65%

45%

31%

4%

We’re leadingthe way in innovation

We’re keeping pacewith industry changes

We’ve made some changesbut could do more

We’re falling behindour competitors

Attitudes to innovation

45%13% 37% 5%

8


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Rates of investment remain low


Despite accelerating technological change, rates of investment remained low in FY2017.

However, looking ahead, many businesses had more ambitious plans for the next 12 months, with cloud-based operating and business management software a key investment priority for 40% of businesses.

<$50k $50k-$100k >$100k

Investment in the past 12 months

80%

15%

5%

Technology investment prioritiesAreas where investment is expected

Cloud based operating andbusiness management software

Website

Online client communication/paperless systems

Systems and softwareintegrations

Document management

IT systems/platforms

Process automation

Mobile enables technology

Data warehousingand analytics

None of these

40%

35%

33%

33%

28%

24%

20%

16%

4%

9%

8


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Opportunities for efficiency gains


Principals continue to see opportunities for efficiency gains across their businesses. More than half nominated client management and business development as areas that could be improved, with one in four seeing business development as the number one priority. Many also recognised the potential for automation to reduce costs and liberate staff to focus on high value activities, rather than paperwork.

Automation priorities: Areas whereautomation would most benefit

Property management

Administration

Trust accountingand banking

Digital forms

Sales

Finance

None of these

Other

56%

39%

36%

35%

21%

13%

13%

3%

Rank 1 Rank 2 Rank 3

Efficiency opportunities

Clientmanagement 18%18% 17%

Businessdevelopment 18%25% 9%

Softwareintegration 16%6% 16%

Performancemanagement 8%17% 6%

Invoicing/documentpreperation 4%6% 8%

Debtor management/collections 6% 9%

Banking and accountreconciliation 8%5%

Compliance andlicensing obligations 4% 10%

Outsourcing

8


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Outsourcing

Experience shows that outsourcing can be a highly effective way to leverage technology gains without having to bring expertise in-house. Offshore outsourcing of administrative, task-based process is becoming more prevalent as it becomes more accessible to SMEs. While 56% of businesses were already outsourcing IT, other outsourcing opportunities remain relatively underutilised.

Nonetheless, there are indications that outsourcing usage is set to grow. Taking current plans into account, around one in four businesses could be outsourcing payroll (25%), marketing (28%) and trust accounting (22%) within 12 months.

Currently outsourcing Planning on outsourcing in next 12 months

Outsourcing: practice and intentions

IT56%

0%

Payrolladministration

17%

8%

Marketing17%

11%

Maintenance12%

7%

HR12%

6%

Trust accointingand banking

8%

14%

Documentmanagement

4%

8%

None of these28%

58%

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Building the business of the future

Technology best practice

Productivity/cost − Know your current state & determine your future state

− Re-direct capacity

− Be clear with staff about the aim & manage through the process

− Focus on execution once the decision has been made

Service and client experience − For the buyer/For the seller

− For the landlord/For the tenant

− Trust/Transparency/Time

− Value, Advice, Insights

− First class experience

Revenue growth − Win more business more quickly/cheaply

− Build distribution channels

− Reverse fee decline

− Virtual prospecting – go digital, leverage data

Technological changeInvest in a platform for the future – Cloud/Open API/Intuitive/Reliable (tested & trusted)

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Outlook

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Conditions set to improve

Outlook

The mood across the industry is cautiously optimistic, with half the business leaders in our survey predicting that conditions would improve in FY2018. The outlook for the industrial sector was particularly positive, with more than 60% of businesses forecasting a positive outlook for both industrial leasing and sales, rising to 68% and 83% respectively among high performing agencies.

That largely accords with the views of industry analysts like IBISWorld, which predicts annualised growth of 1.9% through to FY2022. Nonetheless their analysis also highlights the importance of creating a more efficient business now, before the property cycle turns. Principals should beware relying on market conditions to deliver growth and profitability.

IBISWorld, Commercial Real Estate Agents in Australia, 2017.

Better The same Worse

Future performance of the industry

50%

39%

11%

Positive Neutral Negative

Outlook by sector for next 12 months

Industrial sales 30% 6%64%

Industrial leasing 33% 6%61%

Office leasing 38% 12%49%

Retail sales 39% 20%41%

Office sales 61%37%

Retail leasing 43%30% 27%

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Revenue and profits forecast to rise

Outlook

Asked to forecast future prospects for their own businesses, respondents were overwhelmingly positive, with 82% predicting revenues would rise and 53% saying they would grow by more than 10%. Commercial property management fees were seen as the most likely area of revenue growth over the next two years, nominated by 86% of businesses nationally.

More that a 20% increase 10-19% increase 1-9% increase about the same

1-9% decrease 10-19% decrease More than 20% decrease It’s impossible to say at this stage

Revenue growth forecasts

39%14% 29% 14% 2%

Expected areas of revenue growth

Commercial Propertymanagement fees

Leasing

Commercial sales

Residential Propertymanagement fees

Residential sales

Facilities management

Strata/Owner’sCorporation fees

Valuation fees

86%

82%

74%

26%

18%

14%

9%

Tenant representation 5%

Project management 3%

Research 0%

Other 4%

8%

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Diversification

Outlook

While most businesses remain highly concentrated on a few core activities, it seems that many are beginning to recognise the potential benefits of diversification as a source of new revenue and referrals and a strategy for improving sustainability in a changing market.

More than half the businesses in our survey (51%) planned to introduce additional services in the next 12 months, with 31% intending to offer commercial negotiations and 27% moving into market commentary and analysis. Nonetheless, there remains scope for many to do more, with only a minority outside Victoria providing Essential Safety Measures (ESM) services.

Currently offering Intend on offering in next 12 months

Current and planned services

46%

31% 35%

20%28%

20% 23% 27%

14%9% 12%

7%

28%

49%

Commercialnegotiators

Buyer services Tenantrepresentation

services

Marketcommentaryand analysis

Valuation Financepartner

None of these

Yes Don’t know No

Businesses offering Essential Safety Measures (ESM) services

In-house

Outsourced

21%

79%

53%

22%

25%

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Acquisitions and succession planning

Outlook

It remains a seller’s market for rent rolls, with demand strongly outstripping supply. While one in two businesses are interested in acquiring within the next two years, only 3% plan to sell into an improving market. Meanwhile, more than a quarter (26%) have bought a business or rent roll in the past three years, including 36% of high performers.

Just over half of businesses on average (53%) have a firm plan for the future in place, leaving many business owners unprepared to realise the value they have worked to build. Even if you’re not looking to sell or buy a business, having a firm forward plan is important to ensure that you’re accountable to your vision for the future.

Property management strategies over the next two years

52%44%

3% 1% 0%

Acquisition andorganic growth

Grow organicallyonly

Sell None of these We don’t havea rent roll

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Acquisitions and succession planning

Outlook

Yes Don’t know No

Businesses with key business partner retiring or selling and whethera succession plan is in place

28%

12%

59%

48% 67%

Have a succession plan in place Have a succession plan in place

No Yes

More positively, of the 28% of businesses that have a key partner intending to sell or retire from the business in the next five years, two thirds have a plan at the ready.

Best practice: Creating an effective plan for the future

− Start planning early and set a timeframe. Make sure your personal and business goals are aligned

− Identify your successor — whether a co-owner, employee or external party

− Identify the talent within your business, then develop their skills and make them feel valued

− Know what it’s worth — get a realistic, independent valuation of your business

− Get tax advice

− Decide on your future role. If you’re not ready to let go completely, define your role and make sure you’re rewarded.

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Future threats and opportunities

Outlook

Looking to the future, agencies saw both threats and opportunities. Almost two thirds (62%) believed conditions in the Australian economy or their local market would have the largest impact on their businesses in the next two years, although another 41% said technological change would be increasingly important — either positively or negatively. That accords with the 31% who said disruptive competitors were one of the biggest threats to their businesses in the future, after established competitors (69%) and top-tier agencies (41%).

While it’s encouraging to see that many agencies recognise the potential impact of industry disruption, the challenge is to begin adapting now, before the market changes.

Biggest impact on businessin next 2-3 years

Domestic economicconditions

Local economicconditions

Advances intechnology

Legislative andregulatory change

Fiscal policy

Change in government

Other

62%

62%

41%

26%

23%

12%

4%

Biggest threats to business in future

Other commercial realestate agencies

Top tier commercialagencies

Disruptive competitors

Properly listing portals(eg REA and Domain)

Owner managersoftware

Facebook

69%

41%

31%

27%

9%

Other 7%

4%

Fairfax 4%

Overseas competitors/entrants 3%

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Creating the foundations for sustainable performance

Best practice

Set clear goals − Define your value proposition, company vision & strategy

− Consider CX in everything you do

− Align the team to the vision

− Provide clarity on roles & responsibilities

− Play to your strengths – areas of expertise & niche markets

− Set benchmarks for your business & evaluate regularly

Monitor and reward performance − Establish KPIs to match your business’ vision & goals (not just financial targets)

− Remunerate & incentivise performance aligned to KPIs

− Establish monthly & quarterly performance & development conversations

− Recognise individual & team achievements

− Prioritise structured training & support professional development needs

Leverage technology to create efficiencies − Review software platforms business processes & costs

− Automate & outsource low value activities

− Source cloud based software to enable staff mobility & flexibility

− Focus on technology solutions that improve client service & experience

− Be clear with staff on what the aim is & manage through the process

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Ready to learn more?

If you’d like to learn more about putting our best practice insights to work in your business, contact your local Commercial Real Estate Relationship Manager.

NSW

Harley Beaumont

0427 984 050

QLD

Steven Marinucci

0438 315 071

WA

James Alexander

0437 118 044

VIC

Laura Korda

0407 478 519

SA

Adam Trengove

0428 697 834


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Important legal notice

This information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 (‘Macquarie’) for general information purposes only and is based on statistics and information sourced from the 2017 Macquarie Business Banking Commercial Real Estate Benchmarking Survey conducted by The Interpreters and TJB Strategies (‘the Survey’). This information does not constitute advice. Before acting on this information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. You should obtain financial, legal and taxation advice before making any decision regarding this information.

While Macquarie has taken all reasonable care in producing this information, subsequent changes in circumstances may occur at any time which may impact the accuracy of information. Graphs and forward-looking forecasts have been included for illustrative purposes only and have been derived from information provided by third parties that participated in the Survey. Macquarie does not warrant the accuracy of any information provided by any third party.

Past performance is not a reliable indicator of future performance. Forward looking forecasts are estimates only and are based on the Survey results. Macquarie does not warrant the accuracy of these estimates and actual results may vary based on a number of market, regulatory, financial and environmental factors.

© Copyright is reserved throughout. The information contained in this document must not be copied, either in whole or in part, or distributed to any other person without the express permission of Macquarie.

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