State of the Market: A View From The Top

June 5, 2023

TAKEAWAYS FROM THE 2023 Q2 RE JOURNALS PROPERTY MANAGEMENT SUMMIT

Learn more about current industry trends and why fiscal responsibility, creativity and retaining talent remain critical in the post-covid property management climate.

Perspective on Overall Operations

While the covid pandemic is mostly behind us, post covid challenges continue to be an issue, the most difficult of which is supply chain delays in getting materials. While many people associate materials delays with construction, things like elevator or HVAC repairs are being delayed and preventing updates to existing assets. Because of these delays to upgrades and maintenance, the importance of debt-equity structure will decide on how long the runway for owners can extend. Another basic yet significant challenge is having the funds needed to actually manage the property. In this environment, keeping operating expenses down is extremely important to long term sustainability. Owners may choose to sealcoat the parking lot instead of mill and pave, for example.

Lloyd Berry, SVP / Director of Property Management Director of Colliers Asset Recovery Team commented, “Watch every dollar that you spend and make sure it’s prioritized with the strategy of the company.”

What Tenants Want Today

After addressing supply chain challenges and operating expense cutbacks, staying in tune with what today’s existing tenants want is the next priority in property management. In contrast to the isolation many tenants experienced during covid, what they want most is a collaborative, interactive environment. In other words, they want to be around other people. Experiences are key, so property managers need to activate spaces and create opportunities for social engagement. Activating a space means being able to create and curate those opportunities and experiences, events and physical spaces where people can and do come together and connect, or just even be alone together around each other. This tenant need is just invaluable.

Other requests property managers are seeing more often are increased requests for rent abatement, shorter leases, and tenants who want to downsize or terminate their commercial leases without penalty. Kim Carr, Director of Property Management for Tawani Enterprises Inc, shared a solution some owners are using, which is to write a “good guy” clause into the lease where a tenant can terminate but also agrees to pay rent up until the day they leave.

What About Office?

When it comes specifically to the Office asset class, there’s a lingering question of whether or not landlords are experiencing a flight to the suburbs or to the city. The consensus is that corporate tenants are not moving in mass to either location. Instead, the flight we’re seeing is one to better quality. As more tenants are seeking Class A buildings, Class B and C buildings are struggling to maintain occupancy.
Heather Spearman, Managing Director, Property Management, JLL said, “It’s not either the city or the suburbs, but how much space a company needs in both.”

Other noticeable trends include a flight to convenience and warmer markets, a need for enhanced technology, and a work, live, play experience where the neighborhood is an extension of the office. Chicago’s West Loop Fulton Market neighborhood is a successful example of the work, live, play methodology.

Office Building Amenities in Demand

Office building owners and managers continue to develop creative ideas to increase tenant retention and increase occupancy. Some ideas include adding residential & hospitality to upper floors of office buildings and being more flexible with tenants’ financial condition. Trends show that certain amenities in the office sector have seen an increase in demand compared to pre-covid.
• Wellness Rooms for meditation, nursing mothers
• Dog friendly buildings
• Creative food service options, i.e. Food trucks or onsite cafeteria
• ESGs, Green Space, Honey from bees on the roof, Sustainability
• Outdoor space
• Daycare onsite
• Monthly, low cost or no cost events to bring tenants together

Personnel Challenges

Because Property Management has become even more critical in maintaining asset value, the hiring of experienced property managers and staff is a very real issue. In general, the nature of hiring has changed and employees move more often. With the increased demand for talent, competitive hiring has made retaining and recruiting talent more challenging. Firms are learning to be creative and competitive with both salary and benefits. When you have multi-generational offices, more experienced leaders need to mentor and help train & support the younger generation to build a healthy culture of growth within the company. While management staffing remains critical, experts agree that the biggest personnel challenge is finding qualified maintenance staff.

Internal Operations

Looking internally at revenue streams within the operating structure of a commercial real estate company, the industry shift suggests property management needs to be 50% of revenue, brokerage being the other half. Property Management costs are changing, and firms also need to adjust to keep up. As vacancy increases, firms are backing away from percentage of gross income and moving towards fixed fees. They will push for a minimum fee that’s not tied to rent under the real concern that they can’t continue to carry inflation and other increased costs on reduced fees.

property-manager-and-property-partnerWhy Good Management is Important Once Again

“Cash distributions to the investor is what keeps us all employed,” stated Kristina Grant, EQT Exeter, VP Asset Management. Strong landlords are winning good tenants, so maintaining assets and cementing relationships with clients is priority one. Owners who can afford to give more in the next three years will win in the long term 10-year leases.

By partnering with a property management team, owners can open the doors to tenant retention through technology designed to improve communications with tenants and solidify that income stream. Property management software is capable of texting tenants, online chat support, and dashboards where tenants can communicate directly with property management. These technologies add value on the back end with financial reporting and maintenance ticket request process. Good software and a team that applies it towards daily operations of a property is the solution for many property owners. Sophisticated investors are also looking into AI for market studies to help them understand which markets and asset types are likely to secure a higher ROI.

Final Thoughts

Owners and investors who intend to succeed in the current socio-economic climate need to delay capital projects and focus on keeping their team and tenants motivated.

 

WRITTEN BY: FATINA SAYEGH

 

Send this to a friend