It’s the end of commercial agents (as we know them)

Let me begin this Good Axe Journal article by letting you know that I once was an estate agent; so the critical views I present of the commercial industry don’t come from a place of generic ‘estate agent hatred’. I’ve been there, done that and know how important the role of a negotiator is in the headily emotional space of property. That being said, here’s the tea:

Commercial real estate practice has to change if it is going to continue to represent value to landlords and tenants alike. Post-pandemic, the landscape of commercial real estate has been altered. We see this most in CBD spaces, where there is a wealth of supply in empty commercial office spaces. There’s an embarrassment of riches available… but commercial landlords are still on their way to accepting what is the ‘new normal’ in terms of both the tenants of their spaces, and the tenants of their tenants (by this, I mean a principal lease-holder, and the individuals they sub-let to which could be anything from hospitality businesses to hot-desking coworkers).

Commercial landlords have typically been fairly incurious investors when it comes to the way the spaces they owned are used, and what the needs of their tenants might be. It’s a fairly hands-off affair in terms of property investment; you buy the property, your commercial agent leases it, the tenant pays their rent and all outgoings. Bonza.

And it isn’t that the pandemic has diminished the desire of business owners to have a commercial space. It is, rather, that the way we see business being done has changed - and thus, the way we want to use commercial spaces has also changed. And here’s the rub; being an incurious commercial investor is no longer where a great return-on-investment lies as a landlord.

There’s Nothing to Lease

Okay, that’s untrue. The CBD and suburban areas have a tonne of assets available to lease. But they remain unlet because the cost of making these spaces functional for a long-term tenants is impractical. Without landlord investment and engagement - true collaboration - with their tenants, vacant spaces will continue to dominate city spaces like broken teeth. There’s a couple of different core landlord attitudes that impact on this unwillingness to engage with their tenant.

a) Large holding, experienced commercial property investors

This group are used to their spaces letting with relative ease. They can hold onto assets for a considerable time without income. They are disinterested - broadly speaking - in what their tenants’ practices are so long as they can afford the rent. At a push, they may offer a small rent-free period. This cohort believe that commercial real estate use will go back to pre-pandemic standards, with the CBD fully populated by workers five days a week.

b) Small commercial landlords

Often older people (sometimes with significant small commercial holdings) or fortunate inheritors. These are true ‘set and forget’ landlords who may have made their high-street suburban purchase a really long time ago. Their assets are often quite run down, or are not fit-for-purpose for many business types. Whether older people or their inheritors, cash flow is potentially a barrier to improvement of their property.

While coming from different places, both these commercial landlord types are unwilling or unable to contribute to their tenants’ projects, which ultimately impacts on their overall cash flow. And this position is bad for the landlord: more vacancies, less money. It’s bad for the tenant; there’s nothing feasible to lease, so new businesses simply don’t happen. And of course, it’s bad for the economy.

So what’s the magic bullet here? Who can solve the gap in understanding and relationship between commercial landlord and tenant?

The New Commercial Agent

Coz the old commercial agent really, really sucks.

In the past two years, we’ve attempted negotiation with several commercial agents in the process of establishing Good Axe(s) - and excepting one - they have invariably been really poor interactions. I was dismayed by this as - having been an estate agent - I know how important an agent is to a successful negotiation.

I had a particularly glaring experience that illustrates the need for commercial agents getting a serious professional upgrade.

We met with an agent who knew me as an acquaintance from my own time in the property market. An individual representing the landlord also attended the first inspection, and as we walked through the potential coworking space I entered into conversation with this person and we got along quite well. We had several people in common, ourselves. I had the sense this conversation was making the agent a little uncomfortable, as they wanted to maintain control over information in the relationship (I can only surmise).

I immediately saw great potential in the space, and upon returning to the office promptly emailed the agent and the landlord (those I could identify as decision-makers at the organisation). Professional workspaces are not a simple lease arrangement; they’re a much more nuanced negotiation that involves two parties genuinely invested in one another for the long term. I wanted to display my credos, to welcome them to explore the existing Good Axe, and to learn more about their own organisation’s values. I wanted to show that I was serious about their asset, and that I was a capable person they may wish to go into a business relationship with.

Within a minute or so, my phone buzzed. It was the agent; I thought he might have some additional information for me. Rather, this is how the conversation went:

A: “Don’t ever contact the landlord again.”

I: “I was trying to comm-”

A: “Listen. Listen Iolanthe. I’m asking you nicely.”

shocked silence

I: “I’m not trying to cut your lunch here. I’m trying to build a relatio-”

A: “I know exactly what you’re trying to do. I know you’ve worked in real estate. Don’t contact them again.”

shocked silence

FIN

This interaction was really bonkers. Apart from being aggressive and downright weird, it highlights a significant unwillingness on the behalf of commercial agents to understand their role as anything beyond a rent-collector, or an offer-taker. Ultimately, the negotiation with this particular agent became so fractious, we chose to leave the opportunity on the table. Happily, the landlords eventually contacted us directly … so sending that email to all stakeholders really was worth the courtesy.

What are the skills that The New Commercial Agent should have?

The new agent needs to be able to bring deals together. They need the skill to help both parties identify opportunities and ways forward to collaborate. Information-guarding and order-taking is not the way forward in commercial real estate.

This will require a whole lot of retraining or weeding from the industry. In a real estate economy where there’s plentiful vacant assets, the new commercial agent is a negotiator who is able to maximise long-term cash flow for landlords by finding a matching tenant who they can grow with for an extended period of time. Opportunities for collaborative spaces need to be understood and worked through diligently. Most attempts to create shared professional workspaces fail because the cost is simply too high for one party alone to bear; but the rewards are significant for landlords and tenants who are able to come together courtesy of a nuanced negotiator to get a business offering up and running. The era of ‘hands off’ commercial real estate investment is - is so many ways - now over.