A real estate agent that is to be managing a commercial or retail property will need to cover operational costs and make a profit. That is where the fees charged are so important. It might sound a bit crazy, but some agencies never make a profit from commercial or retail property management; that is because they do not understand what they are really to be doing and do not set up the systems to support the special skill sets. Commercial or retail property management is quite special; the simple rules of residential real estate do not apply.
Many real estate agencies can also regard the property management service in the office as the ‘poor cousin’ to the sales and leasing division. Whilst that concept may work in residential property management, the same does not apply in and with commercial or retail property. Commercial and retail property management is just far too specialised and complex to be a ‘poor cousin’ to anything.
If you run a real estate agency and want to start a commercial property management division, then here are the basic rules:
- Employ good people for the commercial and retail services you are to provide. They need intelligence and drive to specialise.
- Gather the commercial and retail market knowledge and trends so you understand what is required to build your division and business.
- Make sure that everyone that you employ on commercial or retail property really understands what they are doing, and get them trained to pick up on any shortcomings.
- Charge reasonable fees that are reflecting the complex and special tasks of the property management job
So what are the fees for managing commercial or retail property today? To answer the question you should first find out what other agents are charging locally for the management services. You will soon see those that are ‘cheap’ with their fees; the reality is that they do not take the tasks of the job seriously. Low fees do not apply if you are a serious and professional commercial agent. In saying that, it is necessary to supply excellent services to the clients that you serve to justify your fee.
Here are some fees to consider in providing your property management services to commercial and retail property:
- A base management fee should be set for managing the property on a day to day basis. That will include rent collection, income and expenditure management, tenant and lease management, and maintenance management. You should also include an allocation of time for reporting to and communicating with all the tenants and the landlord, given the demands and operation of the property.
- A fee should be set for negotiating the various types of lease rent reviews when and if they fall due. Given that the rent reviews are of different types, it pays to set fees for each type. Market rent reviews are the most time consuming and should attract the higher fees.
- A fee for negotiating new leases and renewals of leases with sitting tenants should be set. It is common to negotiate leases with your sitting tenants.
- New leases with businesses seeking to occupy your vacant space in the property will also attract its own fee. This will be higher than the fees that you set with your sitting tenants, as more work is required.
- Set an hourly fee for special tasks that are outside of normal management duties. This can be out of hour’s property attendance, court attendance, project management, and business planning or budgeting of the property once per year.
As a general observation, retail property is far more demanding on the property manager’s time given the nature of the tenancy mix and the operations of the property. Take care when setting a fee for a retail property management and give due regard to your office and staff costs.
So how much profit should you make in running your commercial or retail property management division? The answer is about 30% to 40% on top of your gross operational costs of running the division. When you know this number, setting the other fees is not a problem.
There may be other fees for you to consider in addition to the main ones above, so be aware of what the property needs in daily management, and what the local property market is doing. Do not discount your property management fees to win the business; a quality service requires a fair and reasonable fee.