The Importance of Property Management in Business

Almost every business requires some form of property or real estate to operate. Even so-called virtual businesses eventually require accounting teams, customer services and the related infrastructure. Outsourcing puts an unnecessary strain on workforce management, especially when scaling up and needing to keep all the corporate ducks in a row. Because of these reasons and many others, there will continue to be a growing need for property for business use.

In this article, we cover why property management is important for business and which real estate related services are useful to companies.

Property & Business Are Intertwined

Few businesses operate successfully without an office, warehouse, retail space or other real estate underpinning it. Any business with employees quickly outgrows a virtual office scenario when staff efficiency and personnel management are important to the company. As a result, property and business are intertwined – it’s almost impossible to do one without the other.

Choosing Offices, Warehouse Space and Other Premises Isn’t Easy

Regardless of whether your business relies on office, warehouse, retail or other space, finding what you need is difficult. It can often take a business over a year to locate a suitably sized, well located building with an office to rent. Then, if you wish to rent a warehouse to store goods and ship out of it in a nearby location, that might not be available through the usual accessible channels.

Unless your business has a substantial workforce, it’s unlikely to have a dedicated employee or whole team focused on the business-related property market. This puts your business at a distinct disadvantage over larger peers that possibly have one or more people doing exactly that. Whether you are looking for the best located retail space in a certain city, a new office build, or something else entirely, what you need is a dedicated team.

The 200-strong team of experts working at Gerald Eve chartered surveyor is a good example of this. They have experience in corporate finance, capital markets, lease negotiation and exit, real estate research and valuation models, and more. Companies rely on their ability to provide a complete skillset, so their business can stick to its core competencies.

Leasing an Office or Warehouse

Finding an office or warehouse that your business can use is difficult enough. Then there’s the whole lease negotiation because no lease is a one-size-fits-all agreement. Everything is up for negotiation, which is good and bad, especially if you’re woefully inexperienced with either complex negotiating or the finer points of leases.

Here are some points that might come up with a lease:

Lease term – A shorter fixed duration with the option to extend for longer is preferable over a longer lease with few options to exit the lease should the need arise. While you may not think scaling back down from a large office to a smaller one is foreseeable, future trading conditions several years down the line might surprise you. Shorter leases with extension options provide flexibility on both ends. Some landlords will agree to shorter leases as part of a broader negotiation.

Requested improvements – There may be some obvious improvements that need to be made to an office either before leasing it or during the leasing period. When this is completed, and which party will be responsible for the costs (including any overruns) are points up for negotiation too.

Inflation uplift to the rent – How is the rent going to rise each year? Is it tied to a standardised measurement like the CPI? Is a fixed increase viable?

Original condition clauses – Some lease terms include the stipulation that the office must be returned to its original condition at the end or termination of the lease. This can be problematic because it doesn’t factor in possible damage through fire or other causes that are not the fault of the company that leased the office, alterations done with landlord approval, or reasonable wear and tear over time.

Subleases – A warehouse space (either in part or in full) may be subleased from another party. While the original business is responsible via the lease agreement, there are potential property liability issues when your business occupies it as a sublease. Understanding and explaining this is often the responsibility of a real estate team representing a business looking to sublease part of a warehouse or office building.

Asset Management

Asset management is mainly an issue for companies that have already purchased the building that they operate the business out of. However, should your company have leased part or all of a building instead, then under the lease agreement that asset should be maintained well to avoid consequences from not doing so.

Repairs and maintenance are important to get done promptly. There are not always property managers within a maintenance team; most leases require that the occupier fix minor issues themselves. Repairs may also be required for the continued use of the building – fixing or replacing the AC or heating system, for instance – where it’s necessary to get it done quickly.

Even aspects like the correct valuation of the asset to ensure the insurance coverage is sufficient for any valuation uplift shouldn’t be overlooked by an owner. Losses from an accidental fire can be very significant, and sufficient insurance cover is one of the few things that can save a business after the fact.

When looking at the different facets of real estate and property management, it becomes clear that it’s more complicated than it first seems. The numbers involved are also not insubstantial, making mistakes certainly extremely costly even if an error of judgement was made simply from a lack of experience. For newer businesses and even old ones that have operated from the same premises for many years, making a move is a daunting prospect. Yet, the longer they put it off, the reasons they need to relocate in the first place usually become more pressing.

Ultimately, companies must seek advice to avoid making crucial mistakes in property management. By taking advice and following it, better outcomes are likely, whether that’s through effective property management during a lease or ownership period, when considering signing a lease, or making a new building acquisition.