Leading Innovation In Commercial Property
While PMG is based on a solid asset class of commercial property, this has not stopped a focus on innovation, revenue streams and different ways of engaging with investors. Under the leadership of CEO Scott McKenzie, PMG has seen 40% year on year growth in funds under management since 2012.
We talk to Scott about the importance of continuing to innovate, how to build a great culture and a vision to improve financial literacy, and enable financial freedom for everyday New Zealanders.
Have you taken anything away from the forced work-at-home aspects of this year?
We adopted a flexible working policy a few years ago, so our team had been using that for some time. The reality is we’re all adults. As long as you can deliver on your job and your KPIs well, communicate effectively with your team, nothing’s dropped within the business and our customers aren’t let down, then where you work is up to you.
On average we try to gather everyone in the office for one to two days at the same time, to continue that collegiality, creativity, innovation and all that good stuff that is important for culture.
It does seem to be that fine balance. How crucial do you think it is to have those come together moments?
It’s really important. There’s a Harvard sociologist professor, Mario Smaller, who has done some work around sociology and human behaviour, with particular respect to why humans innately need to be in the office environment. His thinking was that humans are intuitively drawn to environments or places that provide togetherness and collaboration, and the office environment clearly provides that.
I suspect a lot of firms around New Zealand and the world will land on some middle ground that works best for them. In my view they’ll need to find a model, which maintains that cohesion and innovation but achieves the benefits of working from home, and the flexibility that it provides as well.
During lockdown, people would talk about the new normal and how things are going to change forever. What does that mean for how commercial property looks in the future?
Creating an environment, and fundamentally an office environment, will need to compete somewhat with the home and flexi-working arrangements to attract talent and staff to work in an area together. We need to design better spaces within the office environment, including breakout spaces for creativity, ultimately enabled by technology, and quiet areas where people can focus.
We’ll be smarter about how we use common area space within office buildings; using technology to enable the sharing of board space, meeting rooms, conference facilities within office buildings, rather than having meeting rooms or board rooms within each of the office floors, throughout whatever the office tower might be.
You’ll see the quality has to lift in years to come because businesses of tomorrow will want to ensure they compete with working-from-home, provide an excellent offering for staff to want to come in, collaborate and build a culture, and obviously compete with other peers in the market. You see trends moving forward and the way we use space will structurally change, but it will take a bit of time to get there.
Are you seeing interest from large companies overseas that look to New Zealand as a safe haven to set up an office?
I think that the global interests are still internally focused, and most businesses offshore are probably being run by the CFOs at the moment. In the sense of business and demand for space here in New Zealand, there are a couple of key points. We’ve moved into this environment as an industry – office and industrial – at historically low vacancy rates, so we’ve got very little capacity in the market anyway.
If you compare that back to 2007, pre-Global Financial Crisis, we had office vacancy rates in Auckland of 14%, and in Christchurch it was 10%. February this year, we had vacancy rates of 6% and Christchurch was even lower than that again. We’ve got a lot less capacity in the market and that’s helping to obviously absorb and support the occupied demand that’s in the market now.
We can see in time that structure will shift. The move to high quality suburban office offerings are probably going to get a shot in the arm again, where firms look to provide professional arrangements outside of the CBDs for people to be able to participate in that work-from-home phenomenon.
The office demand in the future will evolve in a geographical sense as well. As an investor and a landlord, we need to be thinking about what that means, anticipate it and make some changes to our offering as well to accommodate that.
If you go further out regionally, there are some areas which have really strong logistics potential, high speed internet and so on. Are we going to see potential interest in commercial property in some of those regional areas as well?
The answer is yes. We’re seeing that flow out of Auckland. If you look offshore to New York, we’re seeing a lot of apartments and condos down 20%, with people looking further afield and prices are being supported by that, thanks to the increased mix of office and the remote working movement.
In the UK city centres, we’re seeing that again. In suburban areas, the demand for houses have gone up in more county areas as a result of people moving out of city centres and thinking more about lifestyle.
Bringing that back to New Zealand, people are moving South, out of Auckland, away from the traffic congestion. Hamilton logistically is in the centre of the golden triangle of what makes up two thirds of the population and GDP. You can already see some demand there for logistics users and offices, in a suburban sense, in places like Hamilton.
We’re seeing the same demand in Tauranga as well. In Christchurch, there’s a fairly steady market. We are seeing a bit of interest in regional New Zealand as well, in areas such as Hawke’s Bay. People are continuing to see the benefit from remote flexi-working.
If we look at your career, you’ve got incredible banking experience. Was there a particular pathway that you had in mind when you were working through these jobs and looking ahead at your future?
Short answer is no. I fell into banking by accident. I had finished university studies and was due to go back to the family farm down South. I had a phone call from a recruiter and got an interview for a role at ASB, so I flew up North and ended up getting the role. The opportunity to step in and gain some experience in the corporate world from an early age made a bit of sense.
The career in banking started almost by accident in that regard and I’ve been fairly fortunate with banking environments to have been exposed to leadership positions in a number of roles across a number of banks here in New Zealand, but also in the UK, which I guess fundamentally has helped me develop who I am.
Would there be a couple of key points that you learned from those early days?
It’s around people and the importance of having clear direction, being able to articulate that direction, enabling others to participate in coming up with that direction and then bringing people along for the journey as well.
PMG has some real innovation in terms of how you offer access to investors. Is it hard to disrupt within this sector?
At PMG, we challenge what we’re doing and why, listen more to that less hierarchical structure and new people coming into the business and ask questions and listen to them. The opportunity for us is all about mindset and challenging and asking, ‘How can we do things better? What’s actually the best approach for our customer here?’ And then being brave enough to enact some change or start the process for change around that.
For me, having a culture where people are empowered to share ideas is where you start to ‘disrupt’ and move the dial on the industry. Irrespective of the industry, whether it’s heavily regulated or not, if you don’t have that culture and the mindset, you won’t evolve, or innovate, or be creative, or challenge the norm and do what’s right for the customer of tomorrow.
How do you go about implementing that dynamic of making things functional and making sure that people have their responsibility, but then making everyone feel like they can contribute?
Forward-thinking leadership is moving away from that hierarchal one. As you grow in leadership and have more people within the business, continuing to maintain a level of humility and humbleness.
Yes, I’ve got responsibilities and I’ve got to ask hard questions from time to time. For me, it’s about not being the senior manager or leader of the business. It’s about how do we as a group come together and row the boat in the same direction?
Does that require a particular level of humility from you as a leader to be quite open with the fact that you might not always have the answers?
I believe so. That’s something that I think I’ve evolved with my own personal leadership capability over time. I accept I’m not the smartest person in the room and certainly don’t act like I am.
Having humility and emotional intelligence for leadership is really important. I look for that in my senior leadership team; being self-aware, using the mouth and two ears in the proportion that they were given to us. We can have good conversations around the table because we’re actually listening and actively acting on what we’re hearing. Good leaders, l believe, will look past titles and treat and play the ball by way of the human in front of them and have a good conversation with them.
Do you think about that world beyond the numbers and the impact that you’re having on families and that emotional connection?
Definitely. When I started in the business eight or nine years ago as CEO, there were only three of us in the business. Now we have 30, I have more time to be thinking and spending energy around strategy and actually purpose and meaning.
Our core vision is to be the most trusted property funds manager in New Zealand, and help enable New Zealanders to achieve financial freedom, be it through improving financial literacy, or just participating in the benefits of commercial real estate. Feedback and recent award wins we’ve achieved suggest we’re heading in the right direction here.
Are we getting better at financial literacy?
Instead of this Kiwi philosophy that’s been embedded in our architecture around investing in a residential property and assuming that will grow, we should actually be thinking about investing in productive asset classes; not just commercial real estate, but other assets as well. Be able to ask the questions and make good decisions around investing in line with a bit of a strategy. For us, that’s probably where we can move the dial more in the communities where we operate, particularly for the next generation.
While residential property is going gangbusters, is it hard to have that conversation with Kiwi investors about diversification?
The reality is people invest in residential because they understand it. It’s one of the most talked about subjects. It’s the front page of the paper every day. We live in it, we have an innate degree of understanding, therefore, there’s some comfort around investing in it or the perceived notion of investing in it.
Commercial is less understood, perhaps because we don’t do a good enough job as a system to help people improve that literacy, to understand and dig under the bonnet and actually physically take the next step to start investing.
If you look at this year and some of the volatility and the reaction to it, what are you taking away from our level of literacy in terms of those who are investing?
My sister’s a good example of it. She rang me up while watching her KiwiSaver balance start to dissipate. She goes, ‘What do I do?’ I said, ‘First thing you do is turn your computer off and go back to what you’re doing normally.’
My best advice to anyone is to go and get good, solid investment advice. We’re not financial advisors. We are in the industry, we understand investment but certainly the next generation, and even for all our clients between six months and 92 years old and beyond the grave, we encourage to get good financial advice, put a plan in place and review it regularly. That is probably the most important piece one can do to build financial freedom over time.
What was the catalyst behind PMG’s Generation Fund and making it so accessible?
That’s a great example of ideas coming from the team. For us, we want to enable financial freedom for all New Zealanders and improve financial literacy, so the term ‘Generation Fund’ is quite simply to enable more generations to participate in commercial real estate by lowering the barriers with currently $1,000 to participate and $1 thereafter using our PMG Reinvestment Plan. That’s quite powerful. We’ve got students investing now who are learning about investing, so they can put in $1,000 and then put in $50 a week.
If younger generations actually start investing in commercial property, do you think that will start to shift this love affair that people have with residential property?
That’s our goal – to improve awareness. You can see a $1,000 turn into $1,020 and then $1,035. You can see the power of compounding returns, readily investing and putting away for the next generation. If we can continue that narrative, not only in the areas that we currently operate in, but also nationally, I think it is a real opportunity for us to move the dial.
The management and the investment side are obviously very connected, but very, very different. How does it work in terms of your leadership over those two aspects of the business?
If you think about it, there are two customer subsets. Our tenants and investors, they’re our customers. Their health and their wealth must be in a good space. If they’re not in a good space, they’re not paying the rent and generating returns on the other side for our investor.
We have good people who understand each aspect and are subject matter experts or divisional experts that lead those respective aspects of the business. But ultimately, underpinned by our core value set and being led by one of the values in particular, which is that we do what’s best for our customers.
Whether we’re making decisions about how we report and the transparency with which we do so, or decisions about the offer that might come to the market for our investors, our customers sit at the heart of what we do and preordain some of the decisions that we make as a leadership team and as a group.
Do you ever have any sliding door moments where you wonder how your life would have been if you’d gone back to the farm?
Absolutely. It’s important to stop and reflect. I try to encourage my team to do that as well. We do look back and look forward on a fairly regular basis. What can we achieve and learn?
If you look at my own personal career or journey, I would’ve ended up down a different path and I’ve got no doubt that it would have been fun and enjoyable and I would have learnt a lot. I’m a big believer in things happening for a reason. But ultimately, you’ve got to make things happen as well.
It’s about having a bit of a vision, being able to trust yourself, have confidence in yourself, keep learning, keep challenging yourself. If the going gets tough, that’s when you grit your teeth and step up. Irrespective of the journey that you’re on, that’s the opportunity.
What’s the best piece of advice you’ve ever been given?
If you have the opportunity to build a business, you want to do it with people you enjoy being in company with. Surround yourself with really good, capable people who fit with the culture and values, treat them well and they’ll respond in terms of trust and respect and step up when the going gets tough.
That’s a philosophy that has certainly worked for our business and in my leadership career over the years.
To find out more about PMG, visit their website.
Click here to read our interview with PMG’s Head of Investor Relationships, Matt McHardy