Name of the management game changing

Posted On Thursday, 31 May 2001 02:00 Published by eProp Commercial Property News
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Cape Town's commercial landlord game has changed radically in the last five years. CBDs, once the only position in town, has become the place not to be. The priority busy corner, on a trunk transport route, has shifted to building in the veldt and away from the main trunks. In the process CBDs have died and main roads have been abandoned for emergent nodes like Durbanville Hills, Century City et al.

Erwin RodeWhilst we have all seen the precipitous deterioration in CBD and main street business areas it seems no one saw it before. 'I can't think of anyone who saw it happening,' says Erwin Rode, the country's foremost real estate analyst and one time senior property executive at Old Mutual. 'No one visualised our CBDs going to pot like that. In fact all the important players steadfastly refused to see it, some of them until just a year or so back.'

Where even five years ago, the typical landlord owner could expect to net over 70% of his gross rents, in the last year or so he has often been lucky to net 30%. Partly that is due to declining rents, main street rents that have sometimes halved in the period whilst expenses have doubled. Five years ago the cost of cleaning and security that may have been around 3%, it is now sometimes closer 30%. Repairs and maintenance have increased four fold, from 5% to 20% of gross rents; and rates and local government charges proportion has grown three fold. Area deterioration has also encouraged tenants to leave or complain unreasonably so administration costs have doubled from a norm of 4% to closer 10%.

But more than just a social change, the last few years have shown that traditional standards and methods of property management are inadequate to the new scene. Institutions which once directly managed their office blocks have opted for outside management, often to agents who themselves were scrambling just a few a step ahead in coming to grips with a changed scenario. Names like Richard Ellis or JHI have faded or gone, and new names like Broll or Omnicron and Capital have appeared. But that is mainly in the desirable A+ class letting so that even suburban standards like David Newham have opted out of their traditional main street, but now difficult, office letting market. And at the lower C category end of the market individual owners have largely still not come to grips with the new scene.

Some owners are opting for more professional help, some in the new field of FM - facilities management. Swiss RE occupy a third of their Claremont office block, the balance is let. As not part of their core business Swiss RE have turned to Drake & Scull, the UK manager of 'hard and soft property services'. Swiss RE pay their rent to D&S and, like the other tenants, expect they will maintain, clean, and fulfill the normal landlord function on their building. As yet there are only a handful of FM specialists, most are consulting engineers like Chris Schnehage, OMs own one time property staffer charged with seeing the buildings were properly maintained. FM extends from structural surveys or hard services, to compiling tenant profiles and supervising sub contract cleaning and security staff, and even transport and letting services.

Most property owners eventually learn, or go bust, that they can become part of the problem they have failed to address. That management skill created and sustains the real estate industry. More recently however some agents (and banks, accountants et al) have made more money out of developing and packaging property than out of managing it. And, like most individual commercial property owners, they have also been found wanting in the new scenario that is office renting in the 21st century.

It is not yet clear what that correct management strategy is now, nor who has that expertise.

Last modified on Thursday, 22 May 2014 15:42

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