In commercial and retail property management, you do need some strategy behind the fee process. It is simply not a matter of just charging a fee based on the percentage of the income received. There will be certain activities in your property management services that require specific attention when it comes to the fee calculation.
I prefer to calculate a fee based on the amount of time to be applied to the particular property under management. This then says that you will need to know the cost factors that apply to your property management services. When you can achieve that awareness, you can understand where you are spending too much time on a particular property under management.
So let’s look at some different ways to calculate property management fees.
- There may be some local industry trends that apply to the management fee process when it comes to the different property types. Survey your competitors to ensure that you understand the fees that you are competing with. For smaller properties under management, the typical fee is approximately 5 to 7 per cent of the gross income received. As the passing income for the property gets larger, the fee tends to get lower. That being said, the fee still needs to cover the amount of work required to manage the property successfully and professionally.
- Be aware that the complexity of property management in retail property is far more significant than that which applies in industrial or office property. For this very reason, the fee to manage a retail property is much higher than the other property types.
- So the fee calculation will be based on the property type and the time input to provide management services. It is simply a matter of knowing how many hours you will spend on the management services for that particular client each week and for each particular property. You can then see where you are spending far too much time for the fee being recovered. What should you do with the property where the fee is too low? The client should be approached regards fee modification. It is best to do that across your entire property management portfolio at least once per year.
- Interview the client at the commencement of management services so you know exactly what they require from the property manager and your agency. List the services and the frequency of those services to be provided. This will remove any misunderstandings relating to ongoing services.
- There are different management duties to be provided as part of the typical property management service. Income collection, lease management, maintenance management, property inspections, and disputes are all separate services to be provided in managing a property. They may very well attract separate fee activity.
- The same can be said for leasing commercial property and minimising the vacancy factor across the tenancy mix. Specific lease strategies such as options and rent reviews will also be quite time consuming during the average property management year. Allow for these processes as part of your fee structure.
- There will be a different lease fee structure for leases negotiated with outside tenants vs. sitting tenants. There will usually be a 25% discount for leasing fees undertaken with sitting tenants.
Commercial property management services are detailed and specific. They demand a special fees strategy.
In commercial or retail property management today, there is no point in making a fee loss. Many agents look at the alternative fees that can be achieved from the property management portfolio; those extra fees being sales and leasing related. They then minimise the management fee to attract the ongoing property management business. The strategy is not good and should be avoided.
Unfortunately it is a long time before the average property will go through a sale and or a lease transaction. That means that the loss factor of the property management division will become a significant cost burden on the agency business. Get the correct management fee from the start, understanding that your property management services are of high quality in every respect. Sell your specialised services and get a good fee.