Australian real estate sector choosing cost reduction over growth
Monday, 12 November 2012 — Driving down costs is the number one priority for corporate Australia according to analysis from the EY Capital Confidence Barometer.
EY Real Estate Partner Richard Bowman says when compared to global counterparts, Australasian companies are focusing on maintaining stability and reducing costs compromising their growth agenda.
Mr Bowman says in the real estate sector where accommodation costs typically comprise 10-15% of overall business costs, companies across the market are trying to reduce costs however they can and owning and occupying real estate was high on the agenda.
“We are seeing tenants reducing the space they occupy and owners selling down any surplus sites they have.
“Clients want to know what potential levers they have at their disposal to minimise occupancy costs, from fighting market rent reviews, reviewing service contracts through to challenging outgoings such as rates and taxes,” Mr Bowman said.
Mr Bowman says opportunities for growth were being lost as companies prioritise cost cutting.
“The real estate sector should be taking advantage of flexible deal structures to fulfill their growth agenda by using development agreements, joint venturing and extended term contracts to help get deals done,” Mr Bowman said.
Fifty seven per cent of Australasian respondents said cash would be their primary source of deal financing in the next 12 months but this contrasted with the real estate sector where cash is in short supply.
“With only 19% of Australasian respondents indicating they were confident that levels of credit would improve in the short term, flexible deal structures will be the best way to drive growth going forward,” Mr Bowman said.
Mr Bowman said during the next 12 to 18 months the real estate sector will see an increase of sub-lease office leasing which will put downward pressure on net effective rents across most parts of the market.
“Although cost cutting will remain high on the agenda in FY13, companies should not lose sight of the potential for growth,” Mr Bowman said.
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