Managing commercial properties is a different kettle of fish than other properties, i.e. residential, although utilising certain shared principles.
It's imperative to get these goals firmly established with commercial property management. If not, you'll tend to bumble along and make ad-hoc decisions without clarity or long term performance.
It's often this bigger perspective you need with real estate property management, whether you're a business occupying them as a tenant or an owner-occupier wanting your business developed around this location and actual property layout.
Regarding who manages such commercial properties in the UK, you often hear references to 'property managers' or 'managing agents' appointed by owners to manage their property interests, often involving different tenants and occupiers.
Even if you have appointed property managers, it's still important to understand the basics of commercial property management so you can work alongside them to get the right results.
Often the small day-to-day queries need decisions making and regular input, which will help shape bigger end results later on.
CLICK HERE to immediately download a Fact Sheet document summarising 12 key aspects of managing any commercial property interest from 4 different perspectives.
Commercial Property Management Through Four Perspectives
After over twenty years of experience managing commercial properties of all types and sizes, both client-side and within private surveying firm practices, I can build the basics down to four different perspectives (and developed into more points in the Property Management Guide book
This will hopefully help you understand broad brush what managing commercial business properties is all about, whether on the Facilities or more Asset Management
side, in order to then delve deeper into the deeper and make informed decisions.
These four perspectives all begin with the letter 'p' which are outlined further here:
1. The Property Perspective
This is the literal bricks and mortar of the property, and at the end of the day, realise that the real property asset is about an actual building that needs to be in good condition and usable. But unfortunately, this can often be forgotten in the cut-and-thrust of returns and gains from commercial property investments.
So check what condition any property is in, and carry out a complete survey to consider what longer-term repairs and maintenance are due years ahead in the future that you need to plan for now.
Also, see what compliance issues exist, which vary from other property types. So if you compare a commercial property with, say, residential, you may not have formal gas safety check requirements with commercial. Still, you may have responsibility for asbestos surveys and management plans. This might also relate to general utility supplies and a broad understanding of correct metering and supply arrangements.
In addition, make sure you know what external areas are included, as you can suddenly be in the realm of shared car parks or landscaped areas with commercial properties, and determine if you or other adjacent landowners have rights of access and payments.
2. The People Perspective
Whatever property interest you have will lead to other people, whether they directly benefit from or need to contribute.
Whilst this is true for all property interests, these interests can get more complicated with commercial properties.
Even a straightforward interest like a landlord or tenant may be made up of complex structures like companies, pension funds, partnerships, and external agents and representatives. There are also others like third-party land interests, more suppliers and contractors with issues like TUPE, and funders and insurers.
The good news, though, is that people will tend to be more business-like with commercial property, and therefore once you do have the right contacts, you can have productive communication.
However, make sure that any day-to-day contacts are known as opposed to formal parties that you need to address any correspondence and notices to as well.
Such business-to-business communication may also bring a host of reporting and communication you may not otherwise need, even if you’re a landlord holding a new commercial property in a pension fund structure. The pension provider is now the official entity in control of things.
3. The Payments Perspective
The property will always lead to money issues, whether an owner is looking for a return or an occupier reducing overheads, mainly commercial properties. You tend to find less emotional attachment than residential or bespoke properties.
Rent is the main issue for let properties, often collected every three months in advance with commercial property and having more black-and-white remedies such as CRAR to collect any unpaid monies.
This is excellent news from a landlord’s perspective; however, when you don’t have a reliable, well-paying tenant, it can mean a long and costly period to re-let instead of residential properties with often a quicker turnover.
You also tend to see more service charges within commercial property, which are less protected by legislation for tenants and therefore open to landlords being more ruthless with. Insurance premiums also often exist as a recharge to a tenant, making a very favourable situation with a commercial property landlord on paper with various service charges, insurance premiums, and quarterly-in-advance rents being due from a tenant.
You also tend to see additional costs often creep in with commercial property, from professional fees and advice to insurance revaluations and costs for perusing any issues.
4. The Paperwork Perspective
Finally comes the paperwork perspective, where liabilities are clarified, and the buck stops somewhere.
For example, the commercial tenant tends to get more bogged down with responsibilities and costs with let properties than with residential properties.
This is because they are often ‘FRI’ leases, i.e. Full Repairing & Insuring leases where the tenant is responsible for all repairs and compliance issues within their demise and indirectly for shared areas through a service charge. Without things like Schedules of Conditions limiting these, this can be a massive liability for tenants.
However, this paperwork gives value to properties and what rents and yields are based upon.
So make sure any variations are carefully noted, for example, side letters and licences. In addition, there is a clear trail of who is doing what, for example, a Risk Assessment providing responsibilities but no actual actions being taken.
CLICK HERE to immediately download a Fact Sheet document summarising 12 key aspects of managing any commercial property interest from 4 different perspectives.
The Types of Commercial Properties Being Managed
Most commercial property has a different business use, although you can come across various combinations. For example, this might be an industrial unit with offices and trade-counter elements or mixed-use properties often with a residential component, such as flats above retail shops.
In terms of the types of commercial property, here are some of the main ones:
This is a serious asset of commercial property when you come to stand-alone office blocks, although you can find smaller blocks and offices as part of a mixed-use property, for example, above flats.
Due to economic and technological changes, you have to be careful with office property management of sufficient demand for offices nowadays, hence the emergence of more serviced offices and shorter waiting periods and planning permissions to change vacant offices to residential redevelopment opportunities.
Property management wise, you have to provide essential compliance that office business tenants may well seek confirmation of and those extra special services that offer the wow-factor for their use; after all, they probably have clients and customers visiting the property.
There can be large and potentially expensive equipment like lifts, heating and cooling 'M and E' equipment to look after, and security and access arrangements to accommodate.
If you get these right, though, with the suitable occupiers in the offices, it can be an excellent long term property investment.
Otherwise known as shops, of course, ranging from one-off ground floor shops to terraces, shopping centres and more out of town retail parks.
Their location is critical, whether good high street locations or out-of-town retail schemes and even practical things like adjacent car parking and visibility can be essential.
Retail property management-wise can be more straightforward, with shared external areas and structure, unless you have other upstairs accommodation with communal stairs as part of mixed-use development.
A little bit more rough-and-ready and not everyone's cup of tea, although surprisingly can be very popular.
These range from smaller workshop-sized properties, to mid-sized industrial units, to more giant warehouses and separate trading counters - all part of industrial property management.
The smaller ones tend to be more owner-occupied by the actual operational business. Larger estates sometimes have complicated freehold title issues and recharge than typical leases and service charges.
Maintenance-wise can be a little crude, with repairs and issues like safe electrics and asbestos being at the forefront of the problems, but often all under any occupational tenant's responsibility.
This includes all forms of leisure-related uses, whether a pub and restaurant or even more specialised uses like cinemas.
These properties focus on the unique service, with location and factors like car parking and the proper layout being key, just like retail properties.
Even valuations can be based on the unique profits for that particular business. In addition to usual property management compliance issues, you may also have other licence issues related to that specific use.
Frequently Asked Questions
Here are some of the popular questions we see about managing commercial properties:
What is the Definition of Commercial Property Management?
Commercial property management is the management of different interests at a commercial property, usually on behalf of the owner landlord, but could be on behalf of an occupier tenant.
It usually involved dealing with landlord/tenant commercial leases, collecting rent and day-to-day inquiries, and arranging contractors and repairs (Facilities Management) or broader value-enhancing changes (Asset Management).
How do You Get Into Commercial Property Management, and What Qualifications Do You Need?
It’s one of those professions that people accidentally get into, rather than a specific career choice, although this is becoming less the case.
Two popular routes on how to become a commercial property manager are firstly through as Reals Estates Qualification/Certification and property course (degree or equivalent), and secondly to move into from more an administration of residential property background within a commercial property managing agent or firm.
What are the Duties of a Commercial Property Manager?
We have a resource on what a commercial property manager’s job specification can look like.
In short, as mentioned above, they range from Facilities Management on one extreme and Asset Management on the other. This extensive range of skills is difficult to successfully fulfil in practice, often two separate posts, particularly in larger commercial property consultancies.
How Much Do Property Managers Charge and What is the Fee Structure for Commercial Property Management?
There tend to be three types of fees involved in determining the overall rates of Commercial Property Managers. Firstly, from the main landlord/tenant client, often as a rent collection fee (usually a percentage). Secondly, through the service charge, and thirdly more one-off fees such as processing a tenant’s application to a landlord for consent.
Regarding how much commercial property management then cost in total, it should depend on the workload involved. For example, service charge fees generally used to be 10% of expenditure; it should now be actual time involved in the instruction.
How Do You Manage Commercial Properties?
There are many details here to bear in mind, with a post on the analogy of spinning plates as to what this can often feel like.
On one extreme, Facilities Management deals with contractors and maintenance, and Asset Management on the other extreme with leases and professional Landlord and Tenant work involving rent reviews and lease renewals.
What is Basic 101 Information on Commercial Property Management for Dummies?
It, unfortunately, tends to be more challenging to clarify and teach what’s needed with commercial property.
Its essence is similar to residential property management in that you manage properties with tenants and lease interest, collect rents and service charges, and arrange contractors and maintenance.
There is less legislation around this and depends more upon what’s in the lease between a landlord and tenant and providing additional obligations to a tenant.
However, the stakes are often higher; therefore, a relatively simple issue may have more significant consequences.
Where Can You Find Information Tips and Guides on Commercial Property Management?
Of course, the go-to guide is the Property Management Guide book we have written and regular email updates.
The earlier trade publications of the Estates Gazette and Property Week will offer articles and information, and qualified Chartered Surveyors will often seek regular CPD (Continued Professional Development) through various seminars and workshops.
How Do You Find the Best Property Management Companies and Firms?
Often word of mouth is best from other people within the property industry, such as contractors, letting and estate agents, and solicitors.
Be aware of the correct detail and car being taken behind the scenes, not just what is said. Smaller firms tend to be very good at local help, and larger ones with reasonable procedures.
What Commercial Property Management Services Exist?
The main ones will be rent collection and operating service charges. This then develops into contractor works and maintenance and lease queries.
Additional services can include vacant property inspections, rent reviews and lease renewals, and managing property insurance.
How Do You Set Up Commercial Property Management Company & Agent?
There’s a bid difference between a company and an agent, often different entities.
A commercial property management company is a legal interest that holds the property interest – for example, communal areas to which other owners party.
A commercial property managing agent is a firm that is instructed to carry out day-to-day duties, with a company maybe even leading them to do this.
In regards to how to start and set up a commercial management company, then creating a legal company with correct shares, Directors, and legal rights is key, requiring legal input. In addition, an agent will need to comply with accreditation body requirements like the RICS.
What is Commercial Lease & Tenant Management?
This is an element of general property management or can be an instructed element. It’s regarding the lease interest and could be acting for the occupier tenant and landlord owner.
Commercial rent management is one aspect and how and when rent is paid/collected, and Commercial Property Asset Management another looking at broader value-enhancing initiatives.
What is a Commercial Property Management Agreement and Contract?
This is the leading contract that details how a commercial property manager is carrying out services at a property on behalf of the client landlord/owner or tenant/occupier.
Signed by both parties, it will outline the duties, the basis and timing of management fees, and the limitations of the service.
What is Commercial Property Block Management?
They are sometimes identified as a CMO (Commercial Multi Occupancy), managing a sizeable multi-let property with communal areas.
Like what a block of flats is with residential block property management, this is often with office or even small workshop units, maybe including serviced offices.
What is Commercial Property Management Software Available?
Some of the main ones are Yardi/APB, Re-leased, and MRI.
These have a high cost and cause a lot of costs and issues when changing to another one due to the complexity of information held on them, such as tenant charges and accounts, service charge accounts, lease details, and even contractor instruction and supplier expenditure.
Where do You Find Commercial Property Management News?
Of course, an obvious one is to join our email newsletter when you subscribe to the free Property Management Pack to receive regular updates.
Two mainstream publications on the broader property industry, including commercial property management news and issues, are the Estates Gazette and Property Week.
Who are the RICS?
This stands for the Royal Institution of Chartered Surveyors, which is the main regulatory and accreditation body for Chartered Commercial managers and other surveying disciplines.
Check that both a property firm is accredited (often on publicity material), and ideally, the individual surveyor or property manager usually has MRICS or FRICS after their name).
In addition to providing general property information for the public and businesses, they can help find a suitable firm/individual and deal with any disputes and queries regarding them.
How do You Find Commercial Property Manager Jobs?
Two popular online job sites are Property Jobs and the RICS Recruit.
It’s also often helpful to speak with recruitment agencies specialising in commercial real estate, which focuses on different geographical areas of the UK, with property managers needing to manage properties within a particular site.
How Do You Find Commercial Property Management Services and Firms Within a Particular Location?
It’s often best to find general commercial property agents within a town or city by looking online, spotting to-let and for-sale boards around, or asking for recommendations from others like estate agents and contractors.
There are also parties like the RICS (Royal Institution of Chartered Surveyors), the main regulatory body for Commercial Property Managers, who can help locate these.
For larger areas like London, Birmingham, Manchester, Leeds, Bristol, Liverpool, Cardiff, Glasgow, and Edinburgh, the larger national property consultancies tend to have regional offices.
Managing Commercial Properties
Commercial properties can be more black-and-white when managing them, which often goes amazingly healthy or wrong.
However, if you get things lined up well, with the suitable occupier and returns, and responsibilities clarified, it can work well for everyone longer-term with stable returns and a profitable business based around this location.
However, getting these things wrong can be costly, whether tenant issues or future redevelopment plans that never get released.
Therefore, carefully go through the above four perspectives of any commercial property interest and begin seeking out the potential pitfalls before they happen.