The global commercial property market is in economic turmoil. Some even compare it to the state of the industry during the worldwide financial crisis of 2007-2008 and the recession of the early 1990s.
Transaction volumes on commercial properties were down by 44% globally in 2023. For commercial property management firms and professionals, this means increasing competition over tenants and higher investments in making existing properties more attractive to potential occupants.
Commercial property management is critical to maintaining a building’s attractiveness, preserving its value, and retaining high-quality tenants. So, what exactly does this process involve, and what makes for effective management at scale?
What is Commercial Property Management?
Commercial property management is a multidisciplinary role involving various administrative, operational, and supervisory responsibilities and activities in commercial real estate. Commercial properties include:
- Retail spaces like malls, shopping centers, and storefronts;
- Office spaces ranging from small professional buildings to multitenant skyscrapers;
- Industrial properties, such as warehouses, that are traditionally used for the production, manufacturing, storage, and distribution of products;
- Special-purpose properties that are specifically designed for commercial purposes, such as hotels, medical centers, and entertainment venues.
Commercial property managers juggle various functions in overseeing, controlling, and operating commercial properties. The key responsibilities of a commercial property manager typically include:
- Lease management and administration;
- Financial and operational oversight;
- Tenant relations and services;
- Maintenance, repair, and upgrades to the property;
- Adherence to ESG strategies and regulatory compliance goals and requirements;
- Preparedness and response to emergencies;
[ Source: CressBlue ]
Commercial Property Management vs Residential Property Management
Residential property management differs from commercial property management quite drastically in three key aspects: the type of clientele, its leasing and legal requirements, and the level of involvement in day-to-day operations.
Commercial property leases are far more complex and require legal assistance and oversight. However, working with businesses and organizations rather than private individuals can be a smoother experience. In addition, commercial property management requires a lot more hands-on work, with more physical presence at the property and closer relationships with the tenants.
The Challenges of Managing Commercial Properties
Economic Uncertainty and Shifts in Consumer Behavior
The commercial real estate market has had an air of economic uncertainty since the COVID-19 pandemic. The economic impact of global conflicts on supply chain reliability, among other macroeconomic factors, has only intensified this.
Roughly half of real estate leaders expect the cost of capital and capital availability to worsen through 2024. In 2024, total office rental vacancies in the US reached an all-time high, with about a fifth of all office space collecting dust.
At the same time, the modern workforce demands more from their workspace than before. Such demands include designated wellness areas, innovative amenities, and a modular, mixed-use approach that maximizes employee productivity while minimizing the overall space occupied.
Demand for ESG Practices and Certifications
Today, tenants, investors, and property users expect commercial buildings to be sustainable and adhere to environmental, social, and governance (ESG) regulations and best practices. By investing in ESG strategies, Certified Real Estate Specialists (CRES) can reduce operating costs while conserving natural resources. Unfortunately, most CRE firms lack the data, processes, and internal controls to meet ESG compliance standards like BREEAM and LEED.
[ Source: Deloitte ]
Compliance with Mandatory Regulations and Policies
ESG regulations are just one type of compliance that requires the attention of commercial property management professionals. Other compliance requirements include local zoning laws, safety codes, accessibility laws (like Americans with Disabilities Act standards), OSHA regulations, and local fire-prevention inspections. Commercial property managers must stay up-to-date on all the demands and regulations, understand them, and apply them in the field.
Technological Disruption and Cybersecurity
Embracing technology to streamline and automate much of the repetitive work involved in commercial property management is critical. It increases profitability, higher tenant satisfaction, and strengthens your position in a highly competitive market. In 2024, most CRE firms admit to lagging behind the digital transformation curve. Specifically, 61% of firms say their core technology infrastructures still rely on legacy systems.
Many firms are taking steps to modernize commercial property management by implementing Property Management Systems (PMSs), Revenue Management Systems (RMSs), and remote-controlled energy and water management tools. However, this modernization presents a new and pressing challenge: ensuring the security of those digital systems and prevent potential cyberattacks.
[ Source: Deloitte ]
The 8 Building Blocks of Commercial Property Management
1. Lease Management and Administration
Lease management is the backbone of commercial property management. This includes:
- Ensuring that all rent is collected on time
- Enabling effective negotiations
- Handling lease renewals
- Creating comprehensive and legally sound lease agreements.
Depending on the management approach, you may also need to include lease pricing, marketing, and sales under this commercial property management basics category.
2. Sustainability
Going green in 2024 isn’t just environmentally friendly but also bottom-line friendly. First and foremost, including ESG goals in your commercial property management strategy is bound to attract ESG-conscious tenants and appeal to investors.
In addition, embracing sustainability is a long-term strategy for reducing expenses. Innovative building technologies, renewable energy sources, intelligent water management, and leak prevention tools, like those offered by Wint, can help reduce your commercial property’s carbon footprint while lowering water and power bills.
Wint’s Water Intelligence platform can closely monitor your water usage to help you reduce water consumption. It also immediately alerts you for leaks and automatically shuts off valves to prevent water damage.
Green commercial property management practices can qualify you for tax discounts and allow you to access government funding to promote your ESG efforts and certification processes.
3. Tenant Selection, Relations, and Retention
Screening the right tenants for your building is vital to creating a vibrant community, and keeping them around is critical to long-term relationships. Tenant screening in commercial property management includes assessing their financial stability, references, and cultural fit with your building’s other occupants.
To retain the excellent tenants you’ve acquired, you must establish an effective tenant communications strategy that prioritizes responsiveness and relationship building. For example, you may develop apps or portals to streamline communications and newsletters to communicate relevant information about property updates and notices.
[ Source: Facility Technology ]
4. Upgrades, maintenance, and repairs
Commercial property management entails owning all maintenance, repair, and property upgrades. Tasks and responsibilities include completing commercial maintenance requests, hiring contractors for routine building upkeep, and ensuring regular inspections and checkups.
One of the roles of commercial property managers and CRE firms is to make the building more attractive to potential tenants and to retain existing tenants while reducing operational costs. They must maintain a comfortable, cost-effective, and welcoming structure for potential tenants and visitors.
5. Compliance, Insurance, and Risk Management
Keeping up with current regulatory demands for commercial properties requires aligning your property management practices and processes with laws and regulations. You may need to hire a professional legal consultant to ensure you navigate the complexities of regulatory compliance safely.
Another area where you may turn to outside counsel is acquiring the necessary insurance policies and managing the risks to the property and its occupants. For example, effectively managing water damage risks and proving your dedication to flawless property maintenance and upkeep can help lower insurance premiums.
6. Budgeting and Vendor Management
Commercial property management requires a holistic and realistic approach to budgeting. This entails analyzing past data and future projections to produce a budget covering operational costs, maintenance expenses, and potential investments to improve the property’s attractiveness.
In addition to planning the budget, commercial property management also involves choosing vendors and service providers for various purposes – from insurance to on-site security and HVAC maintenance.
[ Source: Vendor Centric ]
7. Security and Emergency Preparedness
You don’t need to get ready if you stay ready. Emergency preparedness and the safety of your property and tenants are part of the job. Any commercial property management strategy must include comprehensive emergency plans that outline evacuation procedures and employees’ responsibilities in any crisis that may arise.
Part of preparedness planning includes preventing and mitigating potential risks. For example, invest in access control systems, surveillance cameras, lighting, and alarms that may deter unauthorized access. Similarly, you can install a water intelligence system like Wint to automatically stop water leaks and prevent emergency water damage at the source.
8. Technological Innovation
The widespread adoption of technologies like IoT and generative AI has transformed how commercial properties are managed and used. For example, smart sensors and thermostats can automatically and dynamically manage lighting and temperature in unoccupied areas.
You can also gain access to insights on property performance and implement online portals and apps for rent collection and maintenance requests. By embracing innovative technologies, you can enhance efficiency while lowering operational costs (like insurance expenses, energy, and water bills).
Future-Proof Your Commercial Water Management with Wint
Commercial property management firms and professionals handle crucial aspects of operating, maintaining, and monetizing non-residential real estate. This involves managing legal issues, tenant relations, ESG practices, cost-effective vendor management, and budgeting.
The good news is that you can offload many of these tasks to technological solutions and machine learning algorithms, from automatic billing to IoT devices that turn your commercial property into a bonafide smart building.
AI and data-driven water management systems, like Wint Water Intelligence’s enterprise-grade leak detection and prevention platform, can significantly contribute to proactive maintenance efforts. Wint closely monitors water usage in real time, providing you with the data you need to accurately track and reduce water consumption while shutting off the water supply when a leak is detected, way before it becomes an emergency.
