“The European real estate industry is getting fit for Real Estate Investment Trusts. One way they’re doing this is by focusing on particular sectors. An example would be Slough Estates, who concentrate their particular expertise on the industrial property sector. This makes it easier for investors to understand what the company is about, and for occupiers to understand what the organization’s core business is. It also enables the organizations themselves to get more operational efficiency – a second way in which the industry’s preparing for REITs – because the more focused you are, the easier it is to achieve efficiencies.

REITs are a very transparent, and the operating costs of running them are very visible to investors. Investors are interested in the funds from operations – the difference between the rental stream and the running costs. The focus on operational efficiency we’ve seen already in the States has shown how companies can both streamline their corporate overhead while also maximizing cash flow by running their properties more efficiently.

A third key fitness area is customer service – if you treat your principal customers well, they’ll treat you well. So we’re seeing property owners and managers aspiring to be landlords of choice. The way they’re going to achieve that is by ensuring that their image and reputation in the marketplace is superior to their competitors. They need to show that the service they provide to their occupiers reaches industry-leading standards. The best are systematically asking their tenants – or customers, as I prefer to call them – what they think of the service they’re receiving. This enables them to identify their strengths and weaknesses. Two examples of companies with management team that are focusing on improving service delivery in the UK is B-Serv, Brixton PLC’s property management subsidiary, and Land Securities.

What makes your properties the most attractive is not just building quality and location, but also being a landlord that has a reputation for great service. Great locations plus great service leads to great performance. Many businesses have an intuitive feeling that if you look after your tenants as customers you’ll achieve a better financial result. A new benchmarking group in the UK called Real Service, with 33 member organizations, comprising leading property owners and managers, is putting measures in place and doing research to prove a causal link between the two. They’re measuring and promoting best practice in customer-focused property management, while identifying the link in financial terms between providing great service and achieving great performance.

REITs are widening ownership and making real estate attractive to the man in the street. As organizations convert to REIT status, they’re going to have to set out their values and goals, and all aspects of their business model are going to come under scrutiny. The lesson from North America is that the REIT model has created real discipline without stamping on entrepreneurship, and that combination has delivered exceptional returns. I think we’ll see greater balance between entrepreneurship and discipline coming through in Europe in the way property organizations are managed and driven.”

 

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