01 Feb 2023
Words Josh Mangleson Informer 105

Management Rights operators, don’t make a meal of bundling

Isn’t it amazing how a simple change in process can make a big difference when repeated at scale? I was recently grabbing lunch at an American fast food chain and upon approaching the counter, I found I had to order my burger, fries and shake all separately – there were no meals on the menu!

Josh Mangleson  |  Property Economist

Frustratingly, the time I spent ordering each item was reflected in the time it took to get my meal, as several customers rolled through after me and limited staffing constrained the venue’s ability to prepare my meal.

Unfortunately for me, this unnecessary complexity was also reflected in the total cost of my food and the length of the docket. Management Rights operators have the opportunity to improve their services to lot owners with the equivalent of a meal, rather than the elements which comprise one, through “bundling”.

Letting fees form the base cost, and the addition of other charges for other services such as advertising, internet or room supplies are brought together to form a single, simple bundled charge.

While this process has always been possible, its popularity began to increase in 2014 with the introduction of the Property Occupations Act in Queensland.

Bundling charges streamline the process in a win-win for both lot owners and MR operators, by making the Management Rights service both easier to understand and pay for

As Holmans’ director Tony Rossiter notes, there’s great upside for operators in terms of reduced risk to income streams too.

“Increasingly antiquated technologies such as PABX systems and cable television are becoming redundant in community title schemes,” says Rossiter. “By bundling historical fixed charges for these services, managers can lock in revenue streams that are better spent on emerging technologies such as smart devices and data streaming.

Once bundled as a percentage of accommodation revenue, the bundle income will increase in line with rises in occupancy and average room rates over time avoiding the need to have those uncomfortable conversations with unit owners around increasing charges.”

ARAMA’s recently released 2022 Costs and Charges Survey of Management Rights operators, compiled in conjunction with Holmans, considers recent shifts and trends in bundling.

The ninth edition of this biannual survey highlights a continued increase in uptake of bundling by Management Rights operators, with 46% of operators now providing either partial or full bundling.

That’s an increase of 6% on the previous survey, continuing the pattern observed across every survey since the Act’s introduction.

Interestingly, 80% of operators who bundle surveyed preferred partial bundling where some costs are passed on separately (because who doesn’t love nuggets on the side?)

ARAMA CEO Trevor Rawnsley acknowledges bundling is a fantastic model for many, but not every operator will choose it. “Of course, while there’s great potential benefit to using a bundling model, it isn’t for everyone,” says Rawnsley.

“There’s some risk for operators under the model, whereby if the average daily rate or weekly rent is in decline, rather than growing or steady, an operator bears the risk of a shrinking fee. 

Given how tight rental markets are across the board at the moment, it’s hard to imagine this happening any time soon.”

Some line item costs within schemes have moved more than others due to labour market conditions tightening across the country. Cleaning costs have moved 7% in the last two years, a move seemingly overdue after stagnating in previous surveys, while the average hourly cost of managers’ additional labour to unit owners and Bodies Corporate has increased by $5 to $48 per hour since the last survey.

Rawnsley explains that despite these increases, the average manager’s labour cost is in fact still cheaper than schemes which do not operate under a Management Rights agreement.

“Not only this, but managers’ margins have remained at an average of 10%, so there’s clear evidence this increase is simply in line with the increased costs being felt across the national economy,” he added.

Perhaps as a Management Rights operator you’ve not considered the bundling model before. And, while I’m no financial adviser, I can’t help but conclude by asking, “Would you like fries with that?” END