Employment

Outlook for Strata Industry
Despite the cloudy outlook for the world economy, strata management businesses have good reason to be positive about the future of their industry. Strata has been called a recession-proof industry because of the regular, reliable and recurring nature of its income streams. In reality, no industry is truly recession proof, but the fundamentals of this industry should see it fare relatively well.

The most relevant economic outlook data for strata is residential multi-dwelling construction. The research division of Macquarie Real Estate Group forecasts the commencement of new unit construction in Melbourne in the next 12 months as likely to reduce by between 20 and 25 per cent because development finance will be more difficult to come by – a result of the credit crunch and tighter lending guidelines. While it sounds like a big drop, this is coming down from quite a high level and predicts commencements not completions, so will take one to two years to impact on the strata industry.

With that economic outlook in mind, there are matters principals should be actively keeping an eye on in their business. For instance, according to the latest industry survey (1) by Macquarie Relationship Banking, fees have remained relatively static despite rising inflation. At first glance the numbers look quite reasonable: as a result of their last pricing review, 42 per cent of practices increased their fees by between five and 10 per cent. Another third (31 per cent) of the practices had a marginal fee increase (between 0 – 5 per cent). However, these fee increases don't appear sufficient in the context of inflation of five per cent as reported by the CPI and even this may not be the appropriate way of determining a fee increase.  Keep in mind that CPI is calculated based on a basket of consumer goods, but the number one cost for strata businesses is salaries. In a scarce labour market it would be easy for salary increases to be much greater than the five per cent that inflation is running at.  Each business will have to consider the changes in its costs due to annual pay rises to a stable employee group or as a result of attracting new recruits.

The survey indicates that the majority of firms review their pricing structures every one to two years so the process is already entrenched in most businesses. When you communicate with lot owners about fee increases, the discussion should centre on the quality of service you bring and your points of differentiation. Principals are clearly aware of the benefits of focusing on service rather than price. Only eight per cent of those surveyed stated their business primarily competes on price. Half stated the service they deliver to their customers was their key competitive advantage and 20 per cent cited their brand/reputation in the marketplace.

Service was more likely to be the key competitive difference in the small practices (53 per cent versus 33 per cent) but brand/reputation was more prevalent in the large firms (47 per cent versus 15 per cent). If your firm is growing strongly, and you are moving away from having a hand on every account, you need to make sure that your staff are clear on how your service is different to the firm down the road.

(1) Making the right strategic move, Strata management survey report September 2008 by Macquarie Relationship Banking

This information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 for general information purposes only, without taking into account any readers' specifics goals or financial situation. Whilst we have taken all reasonable care in producing this information, subsequent changes in circumstances may occur at any time and may impact the accuracy of the information. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs.