Commercial Property Managers generally don’t advertise their management rates. This article will help you estimate what it should cost to manage your commercial assets.

Should I Engage a Commercial Property Manager?

The first question you should ask is; “do I need to engage a commercial property manager at all?” Most landlords are capable of managing their own assets and hands-on landlords do tend to get better returns from their assets. However, there are many ways that commercial property management services can benefit landlords. Here are my top reasons you should consider engaging a commercial property management service;

Compliance - Commercial Property Managers will ensure compliance with the building act, health and safety at work act, and understand the legal requirements for commercial property. Most landlords I have worked with prefer not to be involved in the day to day compliance of their commercial properties.
Freedom - Commercial Property Management is a year-round commitment, and your tenants could require assistance at any time. Engaging a property manager means you have the freedom to prioritise other aspects of your business, family or leisure.
Minimising maintenance costs - Good property management companies have relationships with contractors and can ensure that you get fast service and reasonable rates for maintenance. They should also be able to get better rates on insurance.
Technology - Commercial property managers use property management and accounting software that ensures your leases are maintained and your accountant is always up to date with the financial information of your portfolio.

CP Pro Tip: Property Management Fees are often paid by the tenant through the tenant outgoings. Check outgoings clause 3 of your ADLS lease to see if you can charge your tenants management fees.

What is the cost of Commercial Property Management?

When quoting management fees, commercial property managers take many aspects of the property into account. I have outlined the main variables below.

Base Fee

Property Management companies calculate management fees as a percentage of annual rent. This is normally between 3% and 8%. So, if your annual rent is $1,000,000, your management fee will be between $30,000 and $80,000.

There are several factors that will determine where your management fee will fall within this range.

Variations

Number of Tenancies

If you have a single tenant property, you will pay less than if you have multiple tenants. The more tenants the higher the fee.

Type of Property

Retail properties require more management than industrial properties. Office buildings probably sit in the middle somewhere.

Age of the building

Older buildings require more maintenance and are more likely to have issues like asbestos. Brand new buildings will still have warranties in place so maintenance in the first few years should be minimal.

Specialist Functions or Maintenance

If the tenancy that operates requires special maintenance, like for example there is a food court and the Property Manager has to manage the food court cleaners, or some sort of industrial activity that requires more input from the property manager, like a bitumen plant for example, then you will be looking at a higher management fee.

Exclusions

Property management contracts will specify a base fee, but many contracts also have exclusions that will incur an additional charge. These exclusions can include things like negotiating lease extensions or rent review arbitrations. Some management companies charge additional fees for achieving a certain level of rent reviews. These exclusions can add up and are generally a landlord expense, so make sure you understand any exclusions before you sign your management contract.

Minimum Fees

If you have small commercial properties, most property management companies will charge a minimum fee, generally around $10,000-$12,000 per year.

CP Pro Tip: Check my table below to calculate what management fee you could expect to pay for your commercial property

Commercial Property Management Fee Estimator — Use this tool to estimate the management fee for your commercial property

Estimator Limitations:

The above estimator will give you an idea of a fair management fee for your commercial property, however each commercial property is unique and every property management company will have their own methods of calculation. It also does not allow for exclusions, extras or minimum fees.

If your annual rental is above $3m your management fee should also be less than calculated due to economies of scale for properties of this size.

If you would like a detailed quote for the management of your commercial property, email me today. CPP offers property management contracts with no minimum fees and “no exclusion” guarantees. I look forward to hearing from you!

Regards,

Kirstin

The Cost of Commercial Property Management in New Zealand