• Wendy Thomson

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.

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