Real estate investment managers to cut operating costs by a fifth in next two years, says Auxadi
An overwhelming majority (87 per cent) of institutional real estate investment managers are planning to reduce their operating costs by 2023 by an average of 18 per cent to accelerate the pace of recovery from the Covid-19 pandemic, according to a new study.
North American real estate investors are the most committed to cost cutting and have set the most ambitious goals with 93 per cent aiming to slash current expenditure by almost a quarter (23 per cent) ahead of those in the UK (89 per cent and by 17 per cent) and Europe (83 per cent and by 15 per cent).
The new study, ‘Maximising New Growth Opportunities in the Real Estate Sector’, was commissioned by Auxadi, a provider of accounting, tax and payroll services to real estate, private equity and multinationals, and was based on interviews with 100 senior-level real estate investors based in the UK, Continental Europe and North America with average assets under management of EUR13.5 billion.
According to the research, identifying and generating cost savings will be the most important factor shaping real estate investor sentiment over the next two years, cited by almost half (47 per cent) of respondents along with responding to an increased demand for reporting transparency and analysis.
To improve operational efficiencies, almost half (47 per cent) of investors believe the solution lies in adopting innovative technology such as Artificial Intelligence and The Internet of Things (IOT). Coupled with this enthusiasm is a fear of failing to truly implement this technology successfully, with 39 per cent stating that they are already falling behind their competitors and a further 34 per cent stating that keeping pace with technology is a challenge.
As well as focusing on cost savings, the research indicates that investors will take a more circumspect approach to transaction activity, with 42 per cent adopting a ‘wait and see attitude’, 41 per cent ‘proceeding with greater caution’ and 37 per cent citing ‘persistent uncertainty about pricing’.
Victor Salamanca, CEO at Auxadi, says: “Following a long bull run, falling valuations resulting from Covid-19 and an ever-growing compliance and administrative burden has brought the urgent need for cost reductions into sharp focus. For most real estate managers, driving greater operational efficiency has become the overriding objective over the next couple of years, particularly given the level of caution around deal flow in the current investment climate.”
“Forward-thinking managers are using this period to radically overhaul their operating models through increased investment in technology and the strategic outsourcing of non-core elements such as investor reporting, accounting and company secretarial support to third party providers with proven expertise and best-in-class technology. The key for success would be to make the right choices, and not just rely on investing in technology but lead the change and make the best use of any investment in IT.”