Australia's management rights industry has grown 18% to $9.4 billion in a year, as ResortBrokers' latest report shows, with businesses in the Queensland-dominated sector selling on lower profit multiples.
The near-20% increase was driven by increases in real estate values, the ongoing development of updated schemes and also because the agency had access to an improved database, ResortBrokers Research economist Josh Mangleson said.
“We now know of over 4250 schemes nationally, which represents over 310,000 lots under management, worth an estimated $211 billion,” Mangleson, author of the latest report, said. “Our market coverage now exceeds 90%.”
Management rights are long-term contracts to perform caretaking and property letting duties in apartment buildings, holiday rentals and townhouse complexes. Management rights owners often own a unit in the building.
These businesses are paid a salary (through strata levies paid by apartment owners) for performing caretaking duties such as maintaining gardens, mowing lawns, cleaning pools and vacuuming hallways. They also earn property management fees for leasing out apartments in the letting pool as short-stay or long-stay accommodation.
The industry, which has its roots in the high-rise boom on the Gold Coast in the 1970s and 1980s, is highly concentrated in Queensland and dominated by small business owners. Some of the most prominent players include Accor-owned holiday apartment operator Mantra and Oaks Hotels, part of Minor International.
Developers often sell management rights to upcoming projects off-plan or upon completion. Management rights to existing buildings are sold on the open market through real estate agents.
Hotel management agreements – or HMAs – are a different type of contract and are not part of the management rights industry.
Other states use controversial strata management contracts to manage apartment buildings. The ABC investigated these and found that they were perceived unfairly and impossible to terminate.
Management rights contracts can last more than 20 years, but Mangleson argued they work better than strata management agreements since owners of these rights usually have to buy units in the building (or live close by).
“They are more invested in the longevity of the building because they will want to on-sell their own apartment [for a profit] and so there is value in maintaining a good relationship [with other owners],” he told The Australian Financial Review.
Despite this, apartment owners are still unable to remove management rights operators if they perform poorly.
Management rights are typically purchased at multiples of net profit. As shown in this year's report, they have returned to pre-pandemic levels.
Interest rate rises
“Downward pressure on multipliers has been driven by two factors,” Mangleson said.
“First, interest rate hikes have increased borrowing costs. Second, real estate price increases mean buyers can’t afford to pay as much for the business component of management rights to get the same return on investment.”
In FY24, 94 sales were recorded in Brisbane. The sale of management rights to the 220-unit Haven Newstead on the Brisbane River was for $5.64 million on a seven-fold multiplier. Marquee Development Partners developed the project.
A total of 69 management rights were sold on the Gold Coast. Among the transactions were the purchase of rights to the 388-unit Cambridge Residences at Robina for $5.29 million on a multiplier of 6.9. SPG Invest developed the project.
The Sunshine Coast had 34 sales of management rights, regional Queensland had 15, and the rest of Australia had 11. The Park Regis Concierge was one of the largest sales outside Queensland to Queensland-based Collective Hotel Management. The sales price was close to $5 million on a four-fold multiplier.