AUSTRALIAN manufacturers are sacrificing cost savings and flexibility by owning real estate, according to new research by Jones Lang LaSalle.
Senior analyst with the firm, Rupa Gangopadhyay said real estate accounted for approximately 30% of assets on Australian companies’ balance sheets, a higher proportion than their overseas counterparts.
“Manufacturers are exposed to global competition and need to be able to react quickly to changes in technology and consumer demands. One method of doing so is by being more proactive in addressing efficiencies in their real estate holdings,” Gangopadhyay said.
Options include property sale and leaseback, outsourcing non-core business functions to reduce space requirements, and moving operations offshore to cheaper production locations.
“Sale and leaseback of commercial property, for example, allows manufacturers to drive lease structures to suit business needs and is one of the ways of freeing up capital for core business functions or further investment in capital and equipment,” she said.
Gangopadhyay suggested manufacturers should take a strategic approach to real estate ownership, and should particularly consider selling and leasing back property dedicated to non-core industrial activities, such as warehouses and office space.
Companies with 65% or more of occupied space which was leased considered the benefits of leasing to be the flexibility to relocate or take out short term leases if required, as well as releasing capital and making the property into a tax-deductible expense.
Gangopadhyay said she expected the leasing trend to continue due to high property prices and developers and institutions offering attractive pre-lease deals and incentives, flexible leases, fixed rent reviews and break clauses.
Outsourcing has also gained acceptance from Australia manufacturers, especially of warehousing and distribution, Gangopadhyay said. “A significant proportion of companies surveyed stated they were planning to or currently outsource these functions along with R&D and/or their IT,” she said.
However, she added there was still scope for further outsourcing of non-core functions and that Australian companies lagged foreign manufacturers in their use of outsourced services.