The future of strata: thriving through change

Head of Macquarie Business Banking, Dean Firth, shares his thoughts on where the opportunities lie for leaders in strata businesses looking to thrive into the future.

The rational optimist 

There are so many reasons to feel optimistic about the strata industry right now, and into the future. For a range of economic and demographic reasons, tailwinds are at your back.

The strength of the macro environment for strata businesses is more than an opportunity to grow revenue. It’s a leadership opportunity to charter a new course, while the industry is at an inflection point. Our data shows average profit margins are in decline and costs are outpacing gains. It’s the right time to face into the changes that can help you build on your success story.

I think that journey begins by articulating your narrative and your vision for the future, to energise your staff about the road ahead. They should know that in a time of significant disruption, they’re part of an industry with strong fundamentals, and working in a business with leaders who are ready and willing to adapt, evolve and seize opportunity.

As a leader in strata, you have a host of proof points to inspire confidence in your industry. Firstly, the strata industry is part of one of the biggest markets in Australia – the residential real estate market, which is valued at over $11 trillion¹. To put its national significance into context, that’s almost three times the size of the superannuation savings pool².

Within that market, strata schemes have an estimated worth of $1.3 trillion³, with every indication that this value will continue to rise. Why? To put it simply: demand. Higher-density living is a core component of Australia’s housing mix, as our increasingly urban population continues to grow. It’s reasonable to expect that strata schemes will play a significant part in housing that population. There is precedent to back this – Census data shows that, since the mid-1990s, there has been a 78% increase in the number of people living in apartments⁴.

The population growth underpinning demand is strong, especially when you consider it in relative terms. The Australian population is projected to increase by four million in the next decade⁵. In fact, demographer Bernard Salt projects that Australia will be one of the few developed nations still growing at the end of the 21st century.

Let’s reflect on that: while parts of the OECD face declining and ageing populations, Australia remains on a growth trajectory. As it stands, 14 OECD countries are expected to lose population by 2040 and for some, the longer-term outlook is even tougher⁶. For example, by current measures, Japan’s population is projected to fall 45% by 2100⁷.

In response to immediate-term shortages and longer-term growth, there is also policy intent from the federal and state governments to build new and well-located homes over the next five years. This is supported by a blueprint which calls for expedited zoning and promoting both medium- and high-density housing with proximity to infrastructure and employment opportunities⁸.

One of many recent examples at the state level includes a move to bolster apartment and town house construction in Victoria, Australia’s fastest growing state⁹. Effective immediately until October next year, the Victorian government is allowing anyone buying an apartment or town house off the plan to claim a stamp duty concession formerly restricted to first home buyers and owner occupiers. The concession deducts construction costs from the sale price when calculating stamp duty¹⁰.

This is just a snapshot of the factors working in the strata industry’s favour. Combined, they present a strong case for being rationally optimistic about the future. With so many reasons to be confident about the road ahead, pause and question, is that front and centre in the vision articulated to staff?

Finding and keeping talent is a key business challenge, with our benchmarking data showing 66% of businesses struggle with attraction and retention. Some push factors might relate to the challenges of the work – the administration, the communication, the complexity of regulation.

The burden of those tasks can be reduced and revolutionised by the technology available today, let alone what’s in pipeline. Automation of repeatable tasks, digitisation of administrative work and the self-serve capability of artificial intelligence  are just some of the transformative opportunities for business.

We believe technology is a powerful answer to meeting the broader challenges in the market right now, leaving businesses with an even stronger story to tell.

The market context 

No one can predict what’s going to change with certainty, but businesses can be confident in what won’t change – downward pressure on price and expectations around the speed of delivery. To paraphrase Amazon’s founder Jeff Bezos, it’s difficult to imagine a future where customers will want to pay more or expect the delivery of service to be slower. 

That compounds existing margin pressures for the strata industry. Our data shows net profit margins have been in decline over the last 20 years or so, sitting at 23% in 2022, down from 33% in 2005. When you adjust for inflation, margins are eroded even further.

Then consider the ceilings on scale when new hires are your primary answer for fueling growth. Our data shows one full-time employee is required to manage every 365 lots, and that has been the case for about 10 years, irrespective of the size of the market operator. That data point alone shows that to scale, you need more levers to pull.    

With the backdrop of these competing pressures, technology plays a huge role in driving down the operational and administrative components of business and driving up simplicity, speed and ultimately, scale. These investments are also critical to employee experience – imagine the productivity gains of reduced email volumes alone. 

Crucially, the market is already telling us that customers expect a technology solution as part of their service. The reality is customers aren’t benchmarking their experience with you against your competitors. They’re benchmarking it against their best experience, anywhere. If you can order a car, book accommodation and apply for a home loan online and via self-serve technology, why does a strata committee member need to email you to know if pets are allowed in their building?

Equally, we believe technology that isn’t embedded properly risks becoming an extra cost. At the beginning of a roadmap, it’s important to thoughtfully map customer experience and employee experience journeys and knit the right technology in where you find a pain point or an efficiency gain.  

Our confidence in the transformative role of these technologies is why we invested in PropertyIQ, Macquarie’s 100% cloud-based strata management platform, six years ago. For the last two years, we have had full ownership of the development and roadmap, and we have a north star to support our strata clients who are on the PropertyIQ platform in doubling the number of lots under management per full-time employee. 

The genesis of our investment in PropertyIQ was our client’s feedback. They told us administration was hampering growth, and that the role of a technology partner is to automate repetitive, often low value – but necessary – tasks that staff are faced with daily. We think about this in terms of click volume: how many clicks can we reduce? Even if it’s a one-minute saving we’re introducing, multiplied across multiple lots and multiple days, that can be a substantial reduction in manual toil.  

For example, to save the manual collation of documents, we are automating the provision of purchaser disclosure certificates – soon, you’ll be able to pull them straight from the PropertyIQ platform, with any relevant reports automatically attached. Next on our list is a self-serve function that will let owners update their details on the strata roll.  

Technology is an important part of the narrative. The macro tailwinds are significant and the opportunities they present are in reach if staff are on board with the vision, and in their-day-to-day roles, are enabled to support it. That means being unburdened from administrative pain points, with technology that augments their role and frees them up for more value-adding work. 
 

The leadership opportunity 

The future we’re facing into calls for leaders who are adaptative and can both adopt and embed change in their work and with their teams. Finding, growing and keeping the people who embrace this environment with a learning mindset will be just as crucial. 

A big part of your success will be in making sure company values and goals are clear and understood – and setting a vision that excites, motivates and drives staff. Belief in leadership and alignment with strategic goals are primary enablers of employee engagement and ultimately, a high-performance culture. That’s the view of Ros Coffey, Macquarie Bank’s Head of People and Culture, Client Services and Support.

It’s also a time to watch for ‘dominant logic.’ Michael Maness, co-founder of consulting firm SubCulture Systems describes this as a mechanism humans have used over time to conform and create safety in numbers. What can ‘dominant logic’ look like in the context of an evolving business? It’s someone saying "that’s not the way we do things around here.” 

Dominant logic is the enemy of innovation and one that can tip you into stagnation, within a framework Maness coins ‘The Universal Arc’. Maness, who was also Innovator in Residence at Harvard Business School, visualises the birth, growth and ultimate demise of a business via the Arc. It begins with a divergent idea (starting a business), peaks as the business arrives at a ‘sustain and defend’ point, and then slips into (ultimately terminal) decline. 

In summary, now is a time to be part of the change, not a witness to it. This is a real leadership moment, a real leadership opportunity. And it begins by having a narrative that staff understand, believe in and are motivated by. In an industry with the history and trajectory strata has, we think it’s an exciting one to share.