Property Management Roundtable: How to Meet Office Tenants’ New Demands

by Alexandra Pacurar

The dialogue around office property management sounds considerably different today than it did as recently as five years ago. With innovations in technology and sustainable building operations becoming the norm, procedures as common as recruiting talent have become a challenge. Commercial Property Executive invited five top industry professionals to share their most efficient management strategies and advice on how to meet the most unexpected demands in the market.

Participants:

• Tim Allison, National Executive Managing Director of Real Estate Management Services, Colliers International
• Marla Maloney, President of Asset Services, Cushman & Wakefield
• Dan Pufunt, President of Property Management, JLL
• Lee Wallis, Managing Senior Vice President of Asset Services, Transwestern
• Karen Whitt, President of U.S. Investor Services & Real Estate Management Services, Colliers International

 

CPE: How are the expectations of office owners and managers regarding real estate management changing, and what are the major new challenges for managers today?

WALLIS: Clients expect a higher level of service and advice from their management providers. Innovative owners are relying on property managers to participate in long-term, strategic thinking and act as the CEO of the asset. In today’s environment, the ideal senior-level property manager is a real estate professional, not simply a property management professional.

ALLISON: Management teams are doing more than ever before to create memorable experiences and amenities for the tenancy. As a result of deal and construction costs, this tenant retention work is vital to strong financial performance.

MALONEY: It’s clear the property management discipline is very different than it was even 10 years ago, when responsibilities were often limited to day-to-day building operations. Today, managers are expected to take a holistic approach to managing an asset—with advanced sophistication and discipline around financials, building operations and hospitality-centric tenant engagement.

PUFUNT: Put simply, tenants expect more now than they have in the past. There are so many options available to them, and the bar has been set really high for property managers. The challenge we face today is staying ahead of the curve in an ever-changing marketplace. That is particularly true when it comes to technology: We’re always evaluating options for improving the tenant experience through technology like smartphone apps, real-time transit screens, innovations in security and things of that nature. We weren’t having those conversations just five years ago. Now, it’s expected.

CPE: Are you expecting significant increases in any major category of operating expenses during the next year or so?

ALLISON: We don’t expect to see any dramatic operating expense increases over the next year. We have a responsibility to protect our clients’ interests nonetheless, so we annually bid our services to make sure we’re always receiving competitively priced services.

WALLIS: Recently, several states have significantly increased property taxes, which is typically the largest category of expense. Additionally, a number of states have approved increasing the minimum wage, which can increase security and janitorial labor costs by up to 30 percent. As more companies see their office space as a recruiting tool, owners are more likely to invest in certain improvements, such as technology, occupant wellness and sustainable features, which could contribute to increased operating expenses.

PUFUNT: We always prepare for increases in operating expenses, especially with energy. While we cannot predict the exact amount of the increase, it is something we are watching closely and working hard to mitigate.

MALONEY: Energy is a category where we see a steady, year-over-year increase, and we aren’t expecting that to change.

CPE: Along those lines, have you identified any new ways to manage cost increases? Which strategies are still proving to be the most effective?

ALLISON: Contract rebidding and national procurement agreements, but it is also important to conduct tax assessment reviews and appeals and, where possible, look into purchasing utilities in bulk. In addition, management teams are educated to identify operational variables that can be better controlled to minimize waste, like HVAC runtime.

MALONEY: We’ve been able to garner the highest-quality service for our clients at the lowest possible price by focusing on fewer, stronger relationships. It is also critical to perform routine reviews and re-bids of service contracts to control costs and to pass the best possible value through to our clients.

WALLIS: One of the largest areas of savings is in utility costs. Owners can also reduce utility costs by partnering with an experienced energy management and procurement advisor to negotiate better terms and pricing for utilities to reduce overall cost of utilities.

PUFUNT: Knowing our tenants and their needs remains the most effective strategy. We deliver exactly what our tenants need to run their businesses while still being as efficient as possible.

WALLIS: To assist our property teams in finding operational efficiencies and energy reductions, a member of our dedicated sustainability team traveled to each geographic region to provide training on building documentation and operational procedures that can be utilized to find no- and low-cost energy conservation measures. The following year we implemented a “One-Point Challenge,” where properties were asked to implement some of the measures identified in the building retuning sessions to reduce their annual energy use by 1 percent.

CPE: What’s the outlook for the talent hunt during the next few years? Which approaches to recruiting and retaining people are you finding most effective?

MALONEY: Finding quality real estate professionals remains a challenge in most markets. With a narrow talent pool, you’re challenged to be present in the community and at local universities, and to expand your search into other customer service industries, such as hotel management and even military leadership programs. Referrals from our own employees play a big role, too.

WALLIS: We recruit from nontraditional areas and industries, looking for skill sets that are applicable to the new office environment. Talented workers want a job where they feel valued within a company that is making a difference.

MALONEY: All real estate firms look for expertise when filling a position and each has tools to test those skills. However, if we do not secure a cultural fit, we will be making a hiring mistake.

PUFUNT: We find that JLL’s culture is our most effective recruiting tool. We are able to attract and retain top talent because our firm creates a familial work environment with the resources that only a Fortune 500 company can provide. Our clients consistently tell us that we have the best people in the industry, so we do our best to put our people first.

ALLISON: There are a lot of really talented people that have strong skill sets—especially those that are now receiving property management educations in universities—coming onto the scene. They’re already making waves in the workforce, but unfortunately they haven’t been around long enough to have the experience that is demanded in many places. We’re experiencing some difficulty finding talented, experienced managers as a result.

CPE: When it comes to green operations, what new trends and challenges are out there? What will likely be your sustainability priorities for the next 12 to 18 months?

PUFUNT: What’s challenging is being creative in how you approach sustainability. Whereas a LEED certification used to be a culmination of green efforts, it is now just the beginning.

WALLIS: Sustainable building operations have become the norm. However, the Well Building Standard is a new benchmark that tenants are requesting. Many new office buildings are incorporating a variety of building amenities that promote a healthy environment to cater to businesses that want to use their office space as a recruitment tool for young talent.

MALONEY: In the next 12 to 18 months, we’ll remain laser-focused on implementing the best technologies to enhance operations, including real-time metering, monitoring-based commissioning, fault detection, advanced lighting and lighting controls, etc. Portfoliowide implementation of sustainability metrics to track results across a client’s entire portfolio is also a top priority.

ALLISON: It costs money to make many improvements, so we’ll have conversations with clients about their needs and implement what’s necessary to meet them.

CPE: On the regulatory and policy front, what are the major issues today that could potentially affect the management of office properties?

PUFUNT: Regulations in the energy sector will continue to influence how office properties are managed. These regulations affect prices and the bottom line of building operations.

WALLIS: Certainly, accounting changes may impact the operation of assets, as well as the length and type of tenant commitments to space. Additionally, the Tenant Star program will likely require managers to implement submetering to allow tenants to determine individual energy use.

ALLISON: The way sustainability initiatives are becoming about more than just using less energy and creating less waste, operational rules have evolved beyond just getting work completed to doing it with maximum consideration for safety.

CPE: What is the role of technology in the future of property management?

WHITT: Technology will continue to impact all aspects of property management, but legacy systems and cybersecurity concerns remain primary roadblocks to quick adoption. Artificial intelligence can handle lease abstraction work, but then the information needs to be mapped to existing accounting software.  The use of dashboard systems to consolidate information from disparate systems, including new technology, can speed up this adoption process as well as allow for better decision making.

WALLIS: Going forward, technology’s most important role may be to make the interaction between tenants and the building (including the building management team) seamless. For example, tenants can utilize a smartphone app to turn on HVAC in a specific suite or zone during traditionally unoccupied hours, when the building systems are scheduled to be off.

MALONEY: The current and future role of technology in property management continues to evolve. We challenge every department to seek out innovative ways to better serve our clients through advances in technology, but the core aspects of our business cannot be replaced. We’re in the people business.

CPE: How is the rising popularity of co-working spaces challenging the management of traditional office environments?

WALLIS: Co-working lengthens the traditional office day and increases density of people, which has cost implications.

MALONEY: This trend has been shown to be especially taxing to properties in relation to HVAC and parking limitations, which are not designed for the higher density of individuals in relation to building design. We’ve also seen an increase in janitorial costs due to the heavier, special cleaning procedures required for the increased density in the working space.

PUFUNT: Overall, it’s a very small segment of the office sector. However, their popularity does show that tenants value spaces with cutting-edge amenities that allow them to be collaborative and have more flexibility with how they work.

WHITT: These demands require property managers to evaluate legacy systems (in older buildings designed for different configurations) and to implement strong maintenance management plans: The more people there are in one place, the greater the displacement effect when something goes wrong.

CPE: Tell us about a recent property management success story.

MALONEY: In February 2015, Cushman & Wakefield assumed management and engineering responsibilities for a Class A office building in a core U.S. market. Our sustainability services team established a goal of improving energy performance using low- and no-cost strategies at the building, which already had an ENERGY STAR score of 84, placing it in the top 16 percent among its peer buildings across the U.S. Implementation of many of the low- and no-cost measures and some of the medium-cost measures increased the ENERGY STAR score to 87 by the end of 2015. What’s more, these measures resulted in a 26 percent annual reduction in energy costs and a 24 percent reduction in energy consumption, a remarkable improvement in a relatively short period of time.

WALLIS: A Transwestern-managed building in Dallas, at 717 Harwood, underwent a significant improvement program to pursue LEED certification. When the current owner acquired the building, the ENERGY STAR score was 61 points. The team immediately began making system adjustments, boosting the building score to 75. Following that success, the building ownership and management team developed a plan and budget to target LEED Silver certification. With the additional improvements made at that point, the team reduced energy consumption so drastically that Gold-level certification was within reach. Transwestern’s management and sustainability teams worked diligently to identify ways to achieve the final two points needed to achieve Gold certification—and they were successful. The cherry on top of the cake was that the team did not exceed the original proposed budget to achieve the higher certification.

PUFUNT: We recently launched a partnership with Proterra, a company that makes fully electric buses. In October, we rolled out the country’s first fully electric commercial bus fleet, that takes workers from the Aon Center and Prudential Plaza to Chicago’s main transit hubs. The fleet is 100 percent zero-emission and gives tenants a commute that’s not only efficient but also does its part to save the environment.