With the implementation of lockdowns across various cities, the notion of working from home and online shopping has been normalised. As such, companies are looking to adopt a core and flex model which will consequently reduce their office footprint within the CBD; while retailers and landlords are reconsidering their retail proposition to ensure that they remain relevant in the changing landscape.

To promote the sharing of ideas and experiences among members, ULI Singapore organised “Redesigning Asset Management Strategies for Real Estate”, a session where participants were taught then challenged to come up with the most optimal property and asset management strategy for two hypothetical scenarios involving commercial buildings in Singapore.

Asset Management Overview

As a few participants were not versed in asset management, the session kicked off with a brief overview about asset management by Stephen Bruce, Executive Director and Head of Real Estate Management Services at Colliers. Asset management involves the combination of physical property management and tenancy lease management. Physical property management includes the daily management and operation of the asset to ensure the building is safe and efficient for occupiers. In addition, with the rise of ESG, property managers will also have to factor in relevant initiatives. On the other hand, tenancy management consists of the management of tenancy portfolios within the asset, lease negotiation and execution, and tenant engagement. Together, property management and tenancy management focus on the optimisation of returns from the physical asset by increasing capital and rental values through the delivery of asset enhancement plans and leveraging on dynamic movement of the occupier market. Ultimately, asset management is a service delivery process with a physical asset as the end-product and a true asset manager takes into consideration all of these individual components and small moving parts to provide a holistic perspective in offering the right product for an identified target audience.

Scenario Play

In the second half of the session, participants were split into four teams to discuss and propose asset management strategies for the following hypothetical scenarios:

1. A neighbourhood mall, which is near to the MRT station, enjoys high occupancy but rental levels are 20% below market. There are some upcoming new residential developments nearby and the business head has requested for a leasing and tenancy strategy to improve the rental yield.
2. A Grade-A office asset within the CBD is facing significant vacancy in the building as the market remains sluggish and tenants are requesting to downsize as they embrace hybrid working. The Board has requested for a strategic asset plan to reduce the vacancy within the building.

The breakout discussions were facilitated by Stephen Bruce as well as Lorayne Lie, Head of Asset Management, ARA Asset Management Limited; Poh Joo Toh, Director of Facilities Management, Raffles Quay Asset Management; and, Su Lin Wee, Executive Director and Head of Asset Management (SEA), PGIM Real Estate.

To replicate the dynamic circumstances typically faced by asset managers, disruptors were raised midway through the strategizing inciting them to pivot and re-consider their strategies.  Participants were faced with either a major water leakage causing significant damage to both tenant and common areas or the sudden loss of a large occupier.  Teams shared their proposed strategies with each other and invited alternative strategies and suggestions from the other teams.

Takeaways

As shoppers drive the ecosystem of a retail mall, it is important to understand the demography of the neighbourhood so as to determine target audience and positioning of the retail mall. Companies can utilise data from telecommunications operators or credit card companies to identify footfall within the mall and general consumer spending habits respectively. This is especially crucial as the rise of e-commerce has brought about changes within the retail landscape such as the possible obsolescence of departmental stores and fast fashion chains. With this information, landlords can look at curating themes that cater to the target market. In addition, due to the COVID-19 pandemic, there has been an increasing demand for dine-in experience and landlords can consider dedicating a greater proportion of the retail space to F&B outlets. Landlords can also explore new business models such as cloud kitchen and last mile fulfilment centre to cater to the needs of the surrounding residents.

It is important to ensure that capital and rental value of the asset is preserved even during bad market conditions, and asset managers could possibly focus on the following four key strategies when managing an office building:

1. Retain the tenants and make sure that leases are being renewed upfront especially in markets that tend to have relatively short leases
2. Employ relevant strategies to achieve higher rental values or stable rents in times of crisis such as through the implementation of speculative fitout tenancy units
3. Engage key brokers who can share their wealth of network
4. Engage tenants and organise wellness events

The demand for real estate is intricately linked to macro events and to manage an asset well, it is fundamental for the asset manager to analyse these events and review them from a micro perspective on their impact to the asset, and assess how it is going to perform across a number of measurable factors.

Join ULI or subscribe to our mailing list to learn about other ULI programmes and activities.