Managing commercial properties is a different kettle of fish than other types of properties, i.e. residential, although utilising certain shared principles as well. It is actually how these principles are applied to more business and commercial properties that will provide the results you want, whether increased returns and rents, reduced costs and overheads, or simply less hassle with managing them and enjoying using the property.
It's imperative to get these goals firmly established. If not, then you'll tend to bumble along and make ad-hoc decisions without any clarity or longer term performance.
It's often this bigger perspective that you need with commercial properties, 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. Alternatively you’re an investor, perhaps moving into commercial property from residential where you're after longer term stability and steady capital growth rather than quick uncertain wins with residential (see a post here on moving into commercial property investment from residential
In terms of who manages such commercial properties, you often hear references to 'property managers' or 'managing agents' which are appointed by owners to manage their property interests, often involving different tenants and occupiers. They're maybe the same company who first let or purchased the property, or separate specialist property managers appointed or individuals within a business.
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.
Commercial Property Management Through Four Perspectives
1. The Property Perspective
This is the literal bricks and mortar of the property, and at the end of the day realising that the whole property asset is about an actual building that needs to be in good condition and usable. In the cut-and-thrust of returns and gains from commercial property investments, this can often be forgotten.
So check what condition any property is in, and carry out a full survey to consider what longer-term repairs and maintenance are due years ahead in the future that you need to plan for now. You also need to watch out for former tenants fit-out works and individual items that you tend to see more of with commercial property, and whether this is kept, removed, and accounted for.
Also, see what compliance issues exist, which can 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 but you may have a responsibility for asbestos surveys and management plans. This might also relate to general utility supplies, in addition to a general 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 determining if yourself or other adjacent land owners have rights of access and payments
2. The People Perspective
Whatever property interest you have, it will lead to people, whether they directly benefit from or need to pay a contribution towards. 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 knows 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 with it a host of reporting and communication you may not otherwise need, even if for example you’re a landlord holding a new commercial property in a pension fund structure where the pension provider is now the official entity in control of things.
3. The Payments Perspective
Property will always lead to money issues, whether an owner looking for a return, or an occupier reducing overheads, but particularly so with commercial properties where you tend to find less of an emotional attachment than, say, residential or bespoke properties.
Rent is the main issue for let properties, which is often collected every 3 months in advance with commercial property and having more black-and-white remedies such as CRAR to collect any unpaid monies. From a landlord’s perspective this is great news, however when you don’t have a reliable well-paying tenant it can mean a long and costly period to re-let as opposed to, say, 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, and therefore making a very favourable situation with a commercial property landlord on appear 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.
With let properties, the commercial tenant tends to get more bogged-down with responsibilities and costs than with residential properties, for example. 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 as well as indirectly for say shared areas through a service charge. Without things like Schedules of Conditions limiting these, this can be a huge liability for tenants.
However, it’s this paperwork that gives value to properties, and what rents and yields are based upon. Make sure any variations are carefully noted, for example side letters and licences, and that there is a clear trail of who is doing what, for example a Risk Assessment providing responsibilities but no actual actions being then taken.
The Types of Commercial Properties Being Managed
Most commercial property has a distinct business use, although you can come across various combinations of these. This might take the form of an industrial unit having offices and trade-counter elements, or with mixed use properties often having a residential element in, such as flats above retail shops.
A popular route into commercial property is from residential property, with some tips here on how to do this.
In terms of the types of commercial property, here are some of the main ones:
These are the big-boys 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 technology changes, you have to be careful of sufficient demand for offices nowadays, hence the emergence of more serviced offices and shorter letting periods, and planning permissions to change vacant offices to residential redevelopment opportunities.
Property management wise, you have to not only provide basic compliance which office business tenants may well seek confirmation of, but also those extra special services that provide the wow-factor for their use, after all they’re probably having cleints and customers visiting the property. There can be big and potentially expensive equipment like lifts, and 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 right occupiers in the offices it can be a good 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 key, whether good high street locations or out-of-town retail schemes, and even practical things like adjacent car parking and visibility can be essential. This even filters down to the way you often value the space through the principle of zoning and itza
Property management-wise can be more straightforward, with often shared external areas and structure, unless you have other upstairs accommodation with, say, communal stairs as part of a 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 larger warehouses and separate trading counters.
The smaller ones tend to be more owner-occupied by the actual operational business, and larger estates sometimes having complicated freehold title issues and recharges rather 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 fore front of issues, 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 are very much focused around the unique use, with location and factors like car parking and the right layout being key, just like with retail properties.
Even valuations can be based around the unique profits for that particular business, and in addition to usual property management compliance issues you may also have other licence issues related to that particular use.
Managing Commercial Properties
Commercial properties can be more black-and-white when it comes to managing them, which means it often goes amazingly well or horribly wrong. If you get things lined up well, with the right occupier and returns, and responsibilities clarified, then it can work well for everyone longer term with good 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 even happen.