Recession will empower managers

Copyright: David Lawson Published Property Week June 2008

After yet another seminar on sustainability, eco-architecture and waste saving, we all drift back to work, have a cup of tea and shout down the phone that the office is too hot, or too cold, or too messy - or merely that the tea tastes foul.  It is all very well preaching about solar-heated buildings made from recycled bottles and costing a farthing a year to run, but anonymous voices at the end of the phone will have to make it all work. And they are preoccupied with the 98% of commercial property that is already up and oozing CO2.

  Landlords started to realise that property managers might be important long before global warming hit the headlines. Leases were getting shorter, giving tenants more bargaining power. Dwindling numbers of skilled staff demanded better working conditions.  But a tide of new regulations imposing higher standards of health, safety, security and sustainability began to tip the balance against the traditional ‘let and forget’ model. The only remaining resistance was that buildings sold, let and appreciated overnight, so why bother to make them greener or more efficient?

  Recession will be a more powerful force for change than hand-wringing seminars. Agents, funders and valuers will finally have to listen to the people who actually run buildings.  So who are these anonymous telephone voices?  At one time they divided neatly into asset, property and facilities managers. They still have different core functions but the evolution of more intensive, joined-up management has blurred the boundaries, according to Alan White, chairman of the RICS facilities management faculty.

  Responsibilities range from arcane to mundane, from international investment strategy to changing towels in the toilets. Residential management has also rejoined the party as investors pile into housing. Sustainability is on everyone’s mind, and not necessarily for idealistic reasons. Landlords are gearing up for Energy Performance Certificates but occupiers are also complaining about soaring energy bills.

  ‘People forget that we work for landlords but have a duty of care to tenants,’ says Tony Bones, head of Central London property management at Cushman & Wakefield. Rising costs can no longer be passed on without consequences.

   Green issues are only one of the reasons for sleepless nights, however. Risk management has changed out of recognition in the last few years. First 9/11, then Tube bombings and finally the devastating explosion at Buncefield Oil Terminal have brought home the responsibility for evacuation and recovery of multi-let buildings. Managers now spend endless hours training and testing. Health and safety has also risen up the agenda with tougher regulations and new threats such as those emerging from court cases following legionnaires’ disease outbreaks.

  Life is not just about crisis control, however. Investors who borrowed up to the hilt during the boom now watch every outgoing penny. Facilities managers use sophisticated techniques for benchmarking costs of services such as energy, security and cleaning, then negotiating bulk deals across multiple buildings. Meanwhile property managers keep a close watch on rent collection, credit control and covenant quality. Late payers and potential debtors who crept under the radar during the boom face much closer scrutiny. 

   But it is no use cracking the whip if this scares away occupiers. Tenants have become more demanding about quality as well as the cost of services, often doing their own benchmarking when choosing where to locate.  If this wasn’t enough pressure, managers must adjust to a new RICS guide which imposes a raft of extra demands. They must move to fixed fees rather than a percentage based on charges, as this was seen as an incentive to spend. That makes tendering for contracts far more scary – particularly as inflation returns with a vengeance.

  ‘Managers face a huge dilemma because everyone wants want more for less. It is challenging, to say the least,’ says Bones.

DEFINITIONS

[Source: Glossary of Property Terms – Jones Lang LaSalle – ed Geoff Parsons]

Managing property has a variety of meanings, which are often interchangeable. This is one set of definitions from a leading practitioner:

Property Management: The range of functions concerned with looking after buildings including collection of rents, payment of outgoings, maintenance including repair, provision of services, insurance and supervision of staff employed for services, together with negotiations with tenants or prospective tenants. The extent of and responsibility for management between landlord and tenants depend on the terms of the lease[s]. The landlord may delegate some or all of these functions to managing agents

Asset Management: A comprehensive form of management similar to property portfolio management, except that the managers have a wider degree of discretion to realise property, if thought fit, and retain the cash proceeds or transfer them to other types of investment pending an expected opportunity to reinvest in property on more favourable terms. The primary objective is to maximise overall financial performance

Facilities Management: For a business occupying one or more buildings, the co-ordination of many specialist functions, eg property repair and maintenance, security, information and communication technology, to create the optimum working environment for the purpose of the business

Property Portfolio Management: The unified management of a group of properties which are held in one ownership. Decisions taken in respect of any issue are reached on the basis of achieving the maximum benefit for the owners, having regard to the affect on the portfolio as a whole rather than on an individual property