Strata management firms continually report strong growth as Australia’s medium and high-density construction boom reaches its peak – and as yet there are few digital platforms threatening the traditional role they play in building management.
However, when we look deeper at the numbers it becomes clear that while revenue might be rising, relevance is falling. This is a critical time to position ahead of change, because adjacent sectors such as real estate and legal services have already shown how quickly new platforms and players can start solving client problems.
High performing strata firms focus on productivity
Macquarie’s last strata benchmarking survey showed how successful firms were able to manage more lots per staff member, making them more profitable – averaging 43 per cent EBITDA compared. They also retain their staff for longer, putting them in a strong competitive position as the number of strata-managed apartments continues to grow.
All of this impacts their business valuation, as we see a shift towards using a multiple of profits rather than management fees.
Digital has not disrupted strata… yet
However, it is disrupting almost every service lot owners, tenants and strata management committees depend on – from contract law and insurance broking to home security devices and food delivery. And this offers significant opportunity to expand revenue streams, because technology effectively creates a new layer of unmet needs within each strata community.
Strata’s contribution to building budgets is in decline
This trend becomes clear when we analyse the growth in overall building budgets with the growth in strata fees.
Between 2006 and 2017, annual average revenue per lot grew from $217 to $416. But the proportion those fees represented within the building budget fell from 22 per cent to 11 per cent. Based on these trends, it could be as low as 6 per cent by 2022.1
There is a disparity between revenue and margin performance. With salary costs continuing to rise, this could put profitability under pressure.
Growth in revenue - but not relevance
These numbers indicate a pool of economic value within buildings that strata managers are not involved in – and an opportunity to monetise new solutions and build community relevance.
Insurance is a good example. Strata insurance commission fees currently represent 14 per cent of revenue – but 46 per cent of profits, effectively subsidising other activities by providing the right advice at the right moment. What other services could incrementally add revenue streams? Do tenants and landlords need help connecting utilities or NBN – with a bundled discount? Can you generate financial value back to the community through shared parking or other amenities? What opportunities might driverless cars, Airbnb, real-time ecommerce deliveries or AI-connected home devices create within strata communities?
As well as creating these opportunities for new value-add services, digital technology can also provide the capabilities needed to provide them at scale, at speed and at a lower cost.
Strata management is still a relationship-based service
A stable base of talented people has always been core to success. However, in the future your people will need a stronger bias to action, understanding how to resolve problems and add value to individuals within the building (not just committees). Their role will shift from being efficient time-managers and negotiators to service innovators, and attracting, retaining and engaging these people demands a more flexible and transparent management approach.
Put a commercial lens on client queries
Sustaining future profits depends on the creation of new profitable revenue streams. Every day, your strata managers may receive client requests for services outside your scope of work. Start recording these ideas, and look for commonalities. Are there services they would be willing to pay for, and that you have the capability to deliver – at scale?
For example, chatbots now solve common queries for telcos, and AI-enabled systems can automate dispute resolution without requiring human interaction. This can free strata manager time for value-added services, but also provide a more responsive experience for lot owners.
Serve the community, not just the lot owner
There are 1.9 million lots under management in Australia – with lot owners spending $5.8 billion each year to manage the upkeep of their buildings. Additionally, the 4 million residents in strata communities spend $142.5 billion on their living costs.2 Tapping into that much broader opportunity requires a strong presence.
To set a new benchmark for brand relevance (and ensure advocacy and retention), consider how much more you could do for the individuals within your buildings. This can create more memorable, valued experiences. Tenants may one day also be landlords or lot owners, so think beyond the committee you report to and how you can improve every touchpoint.
New brand opportunities within your communities
A strategy for growth
Businesses are operating in a completely new landscape, dealing with uncertainty, volatility and an accelerated momentum of technological change. And that may mean re-thinking the way you define your strategy.
In 2000, McKinsey defined three horizons of growth based on the maturity and relative risk of different types of projects.^ We believe this is a useful way to describe the three growth initiatives that will need to happen concurrently in order to sustain business growth in this changing business landscape.
Re-frame your perspective
This is a time of opportunity, not threat. We believe business owners are in a strong position to thrive.
To grow sustainably and profitably, it’s important to acknowledge that traditional rules no longer apply. Business models have been democratised and boundaries have dissolved. Customer expectations are driving the pace of change.
Consider your innovation model and mindset, the broader business ecosystem you can tap into, and the capabilities you need to put in place.
We trust you found this report informative and insightful, and we’d be happy to continue the conversation with you.