The Commercial Property Management Model is Broken - But There is no Easy Fix

The Commercial Property Management Model is Broken – But There is no Easy Fix

The events of both 2020 and 2021 have reinforced my thinking that the current model for managing commercial property is not only wrong, but beginning to implode. So, what went wrong and how do we fix it?

The most common or traditional model of commercial property management has its roots in residential real estate – perhaps beginning when residential agencies with landlord clients who also owned commercial property, recognised an opportunity to add an extra revenue stream to their agency’s income and simply applied the residential property management model to managing their clients’ commercial properties. While commercial property has since diverged and evolved into the specialised industry sector that it is today, creating a demand for equally specialised commercial property professionals, the educational and professional supports and pathways have not.

The CPM’s role has changed considerably

Meeting the demands of contemporary commercial property management has seen the commercial property manager’s role expand considerably, and naturally, an increase in their workload too. The CPM is now not only responsible for collecting rent, dealing with outgoings, rent reviews, options and lease renewals, they are also expected to undertake contract management, facilities management, OH&S and ESM compliance, understand accounting, taxation and valuation issues, manage dispute resolution, unpack and apply complex legislation, handle legal matters that arise and provide solutions for all parties, and, more recently, deal with COVID-19 rent relief and payment deferments.

This increased workload and level of responsibility is not necessarily reflected in any increase in agency income or the property manager’s salary package. And, more often than not, it is not supported by any ongoing professional development, formal qualifications, or, most importantly, a level of professional indemnity commensurate with the level of risk these expanded roles expose the commercial property manager to. It is also quite clear from that role description that merely superimposing the residential model onto commercial management cannot possibly work, and that this in itself is another source of unrelenting pressure on the CPM.

What role does agency culture play?

Another negative aspect of the industry is agency culture, which involves the treatment of staff, especially during uncertain times such as a pandemic. Some agencies treated their staff horrendously throughout 2020 and 2021 – maybe this was their ‘norm’ – but I must say that I was rather shocked at some of the practices I learned about. When you combine this scenario with the increased workload and level of responsibility, it is no wonder that many commercial property professionals are leaving the industry. Even experienced agents, who are exceptional at their roles, are now looking to slow down or semi-retire as a means to escalate their move away from the industry. Agencies are struggling to replace exiting professionals, as the sector is not as attractive as it once was. You are probably familiar with ‘The Great Resignation’, a phenomenon that describes record numbers of people leaving their jobs from 2021 onwards – and yes, the commercial property industry was not immune.

Can we fix the problem? Yes, but it requires a change in thinking

We need a new model for commercial property management; however, this cannot happen without us first acknowledging that residential and commercial property management have different requirements.

Commercial property management requires wearing a different ‘hat’ to residential property management, particularly given the extensive changes to residential and commercial property legislation. Both are two very different streams of property management and this is even reflected in the attitude of the residential property manager to tenant clients – Oops! Did I just say ‘tenant clients’! I come across many residential property managers who dismiss their tenants (renters) as just ‘renters’ rather than recognise and value them as clients.

What needs to change?

Experience has taught me …

When I set up my own independent agency, I took on a commercial property real estate franchise for five years, then moved back to being an independent specialised commercial agency. While I can see the merits of franchises and marketing groups, my experience taught me that these structures rarely provide the level of support specific to commercial property agency practice. In fact, in working with a number of franchises and other agencies, I have observed that their leaders and principals neither understand the risks nor realise and value the potential of the commercial agency business.

Industry bodies & thought leaders

Currently, there is no strong bespoke industry body in Victoria advocating for small to medium real estate agencies and other organisations managing commercial property investments. There appears to be few visionary leaders in this critically important part of the real estate industry. The current option, in my opinion, stifles feedback from its commercial property member agencies thus preventing any meaningful change or development within the industry. A meeting of the brilliant commercial industry minds, to build a vision and enact that vision in a positive and transparent way, is vital if we are to address those issues fundamental to change.

Setting a standard for agency practice

The setting of commercial property industry standards is also imperative to assist agencies with minimising risk to their businesses. I am aware of an increasing number of commercial agencies having to defend themselves in legal proceedings against a range of allegations, many of which included property managers never having attended a property to conduct routine or other inspections and where serious issues resulted in accidents or fires because of a property manager’s failure to do so. These property managers will often remark that they do not believe such monitoring to be their job. While we must clearly understand our role as a commercial property manager and our limitations of expertise in areas such as building compliance, how does a property manager manage a property they have never physically seen? Maximising the return on a commercial investment for our clients also means minimising those risks that we can control. Making sure that inspections take place is something within our control and a meaningful way that we can minimise risk.

But the problem, as I see it, is not just with the industry body. Agencies too can undermine the profession. For example, those commercial agencies that like to joke about other metropolitan or regional agencies, suddenly found that the joke was on them when many of those agencies (with well-balanced rent rolls) emerged successfully on the other side of COVID-19 lockdowns – and even actually grew their businesses substantially. How many other agencies did not survive? How many will continue to survive?

Suggestions for change

I have always strongly believed in a very different model for commercial property management, as do a few of my close colleagues with their own agencies, and while putting this belief into practice has worked well for us for many years, the added weight of compliance and responsibility has meant that we are all now feeling similarly challenged. Only a massive shift to a new and much-improved model will result in industry-wide change. But what might that model a look like? What do commercial property investors want and need? As an industry, we must really understand their needs if we are to meet them.

A new agency model

To survive as an industry, we need to build a new and improved commercial agency model that enables the effective and efficient management of financial and compliance risks through the centralisation of core functions like trust accounting, lease administration, the engagement of consultants to deal with legal matters, accounting matters, valuation matters, and monitoring building compliance and inspections. Focusing on sales, leasing and management without the distraction of compliance and basic administration tasks, offers a solid opportunity to concentrate on building the business through an expansion of service offerings. Expanding the offerings will, in turn, expand the fee income and through the investment in centralised staff and the systems required to meet that expansion, costs can be streamlined and efficiencies achieved.

A common complaint from the clients of many commercial agencies is that they feel that they are just a number. Many of these agencies are also characterised by high levels of staff turnover, a lack of communication, a tendency to overlook the big picture, and general lack of interest in treating investment as an opportunity to increase income for the client and agency. Perhaps a model where the focus is on creating a personalised customer experience through tailored services and dedicated liaison, and where the client is not just a number or just a landlord or a tenant, would better address these issues.

Postscript

It is time to sweep the current model aside and come up with a brilliant alternative for the future. It is time to embrace all genders and expand the industry beyond its stereotype of middle-aged white men, to an inclusive expert and valued workforce. But such dramatic change requires a fresh, new vision and the courage to overhaul the commercial property industry and transform its people into leading-edge professionals.

Let us have this conversation and by challenging the current norms, we can forge the way ahead to a new beginning and a new model for commercial property management.

Wendy Thomson February 2022