The commercial property management industry has its hands full, trying to adjust to challenges that remain after the pandemic era, along with a new set of challenges triggered by rising inflation.
Even the most competent and experienced property management firms have been plagued with staffing challenges, the burden of higher wages, delayed rents, the looming threat of rent control, and higher costs for financing, and maintenance, among other things.
The trend of employees working from home has caused many changes in tenant expectations and the structure of rental contracts. The solution to rising costs is more complex than raising rents to cover the difference.
The following areas represent some commercial property management trends to plan for and accommodate in the coming year.
Need for Improved Profit and Stronger Cost Controls
Real estate surveys have shown that increasing profits, reducing costs, and dealing with rising wages are top property managers' to-do lists for 2023. Inflation and wages are placing more pressure on the bottom line, and top-line revenues have been impacted by rising rent delinquencies, among other factors.
Inflation is expected to remain high for the next one to two years, and the rising cost of materials and pressure to comply with green initiatives will drive up costs for repairs and maintenance.
Taxes will also increase as government entities look for ways to defray their costs, and energy will become more expensive. Commercial property managers must continue focusing on cost control.
Outsourcing to Third Parties
Outsourcing specific tasks or maintenance routines to third-party service providers has become a saving grace for property managers and will continue to provide cost-cutting opportunities.
Commercial property managers often have too many areas of responsibility and need more depth of knowledge in specific areas. This dilemma can impact the appeal and safety of the property, the ability to attract quality tenants, and more.
Outsourced work, such as storm water maintenance and repair services for the property's water management system, provides an opportunity for labor and expertise while minimizing costs.
Property managers will hire more third-party firms on an as-needed basis to get a specialized level of expertise rather than bearing the expense of full-time, high-expertise employees on the payroll.
Outsourcing firms provide additional ways to cut costs through services such as penalty avoidance due to knowledge of regulatory issues, accessing municipal rebates, and other items that property management staff may not know or have the capacity to handle.
Managing Changes in Demand
Larger cities such as San Francisco, New York, and Boston will see higher demand and lower occupancy rates for rental units due to a lack of new home construction. However, property managers must keep tabs on renter trends in their specific locale since work-at-home capability and a continuing strong job market will see potential tenants relocating to cities with lower taxes and cost of living.
This change in rental demand could create difficulties for property managers that need to manage expenses more aggressively or provide enough amenities, lease flexibility, and other factors to retain existing tenants and attract new ones.
Growing Demand for Property Management
Aside from tenant demand for rental units, commercial property management trends include higher demand for professional property managers. Owners and landlords realize that PM firms offer expertise and digital management methods that streamline daily work and improve the profit & loss statement.
Tenant expectations continue to increase, and landlords must perform background checks, manage tenant turnover, collect rent, and deal with delinquent payments. Landlords must also respond to government-mandated compliance, repair, and maintenance requirements.
Managing properties without the skillset and knowledge of professional property management could become costly, and owners and landlords have become increasingly aware of the value delivered by property management companies.
Increased Tenant Focus
Commercial property rental data has shown that investing resources into retaining tenants costs less than high tenant turnover. The latest trending activities for tenant retention include financial incentives, improved communication, and additional amenities.
Financial incentives range from offering lease renewals to good tenants before their current leases expire. Offering competitive rents can keep tenants from shopping for a better rate. More property managers are offering their tenants flexible lease terms, such as early termination with no penalty or early renewals.
Property managers continue improving communication with tenants through friendly staff, good customer service, and software-driven tenant portals. Tenants are happier with quick responses to maintenance requests, and there is a new emphasis on maintaining open, transparent, two-way communication between tenants and property management staff. Some commercial property managers have set up tenant-appreciation programs that offer small rent discounts, gift cards, or other small gestures that let tenants know they matter.
Additional amenities that keep tenants in place include community events, a gym, and upgrades in individual units, such as updated flooring or higher-quality appliances. Maintaining the grounds, pool, and common areas well is another way property managers retain existing tenants.
Most Requested Amenities
Commercial property management trends indicate rents that continue to rise and more tenants that work at home. Residential property managers can justify higher rents and retain tenants by adding amenities that fit tenants' increasing time at home.
According to a renter preferences survey, about 90% of tenant respondents said they wanted these amenities:
- Washer & dryer in the unit
- High-speed internet
- Walk-in closets
Working from home requires much more reliable internet service, and amenities such as soundproofing enable tenants to focus on work and prevent outside noise from interfering with work communications. Property managers that can accommodate these requests stand a better chance of attracting high-quality tenants.
Additional amenities include lockers to receive mailed packages and digital features such as keyless entry and free WiFi.
Trends in Technology
As commercial property managers are pressured to do more with less, technology solutions have become an increasingly important tool. Software specifically geared toward property management gives property managers functionality that helps streamline work processes, increase task efficiency, and improve communication.
Property management software can handle several functions that help property managers manage all aspects of their properties. Tenant data storage, billing, issuing late notices, scheduling maintenance, and more can all happen within one software application.
The software handles office and business tasks and often includes additional tools geared toward tenant communications, such as a tenant portal.
The tenant portal provides a centralized location for tenants to access the system and pay rent online, schedule maintenance requests, communicate about issues, and get quick answers to frequently asked questions.
Property management software ranges from free or low-cost mobile apps with a small set of services to cloud services and large-scale SaaS (Software as a Service) software platforms that can manage hundreds of units and multiple properties.
Property Management Software Value-Adds
Automation is one of the key ways property managers can shave down their workload and cut costs. Software tools are shifting some of the work over to tenants, giving them the control to inform themselves and manage their units.
SaaS platforms improve and streamline property accounting, tenant screens and checks, online payments, property repair and maintenance schedules, virtual showings, and online lease signings.
Using software to increase automation enables property managers to scale their business by handling more units and related work cost-effectively.
Business Growth Trends
Commercial property management trends include plans to scale up operations for the coming year. Many larger property management firms are advertising their use of technology to attract new clients and maintain their market share.
Some property managers are also playing up their business advantage by touting industry specialization, such as navigating environmental constraints, lender regulations, taxation, and insurance requirements.
The toll of inflation and lack of diligent cost control could weaken some commercial property management firms making them easy acquisition targets for stronger firms and causing some industry consolidation.
Commercial property managers will also engage in more marketing efforts, using SEO, branding, and other means to grow their market share.
Although the ongoing worker shortage will continue to challenge PM firms, technology solutions that increase scalability and the solid ongoing rental demand will work in property managers' favor.
Owners Want More Insight and Assistance
Property managers will continue to add more services to help owners manage their property portfolios. Offerings include more in-depth financial reporting, assistance with rent collections and tenant evictions, and an advisory role in financial management.
As affordability declines, owners want assistance from property managers to deal with tenant friction and the negative consequences of renters who find themselves powerless to control or improve their experience.
Seek High-Quality Solutions to Grow Your Property Management Business
Commercial property management continues to evolve, with outsourced services and software offering essential solutions to some of the biggest challenges.
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