The role of the traditional managing agent is in peril. We believe they must embrace risk and innovation if they are to survive.
Challenges come from three main areas: first, fickle and savvy customers who expect a more enriching experience and greater flexibility and reliability; second, increasing performance, cost efficiency and transparency demands from clients; and third, enlightened landlords seeking compliance on environmental, social, wellbeing and health and safety matters.
Bill Hughes, head of Legal & General Investment Management, told Property Week that managing agents were being asked to provide services they were “not equipped to offer”. In response, property manager MJ Mapp blamed property owners for instigating a tendering process that outsourced management to the lowest bidder.
Our assessment is that salvation for both property owners and managers lies in persuading owners and investors to form strategic partnerships, which means both parties must shift their thinking away from the traditional ‘hands-off’ outsourcing model.
At John Lewis’s state-of-the-art warehouse in Milton Keynes, you can see true collaboration in action, in the form of the company’s partnership with Austrian firm Knapp, which enables the retailer to deliver more than 220,000 different product lines to its stores and online customers.
Property companies put their reputations in the hands of managing agents, but their relationship is nothing like the one between John Lewis and Knapp. Why would managing agents embrace risk or invest in technology when there is no long-term partnership?
The best way forward for both sides must be to marry their interests according to the following guiding principles:
- Strategic alignment and planning where owners and managing agents identify a mutual vision and document key areas of responsibility, risk and reward;
- Clear agreements and contracts covering financial performance, customer experience, environmental responsibility and community impact;
- Buy-in and leadership from senior management;
- Effective deployment of capability and tech to encourage best practice and innovation;
- Greater transparency to customers, making openness, honesty and timely reporting a priority;
- Close links between performance and reward.
Partnerships are more likely to break down when the parties are concerned only with their own interests. Hence our enthusiasm for putting the customer at the heart of every property company’s business strategy – and our frustration that customer engagement is not factored into the performance of investment managers, despite evidence that high customer satisfaction can improve total returns by almost two percentage points.
Landlords’ dissatisfaction with managing agents is a key motivation for them to increase the frequency of re-tendering; they see it as a way of giving incentives for better performance, but it is in fact part of a downward spiral.
There is no doubt that occupiers will become increasingly willing to partner with disruptors such as WeWork if they can’t get what they want from traditional landlords and their managing agents.
Creating an alignment of interests between owner, manager and occupier is paramount. As the strategic partnership of John Lewis and Knapp shows, it is ultimately the customer who benefits – and therein lies the source of sustainable, competitive advantage.
Jon Lovell is co-founder and director of Hillbreak and Howard Morgan is founder of RealService
This is a summary of a more detailed article, the full version of which can be found on the RealService and Hillbreak websites:The role of the traditional managing agent is in peril. We believe they must embrace risk and innovation if they are to survive.