The fees that leasing agents get from landlords are linked to transactions and most of these transactions are linked to the granting of new leases. Increase the number of new leases and you increase your fee revenue. Simple.
In some cases, seeking and securing a new occupier is what’s required and constitutes the best advice and action for a client. Where an occupier is unwilling or unable to renew on appropriate terms and/or has lost relevance to the consumer market, the need to find a stronger alternative to replace them makes sense.
But perhaps we should question whether that should be the automatic and preferred position, particularly in the retail, leisure and hospitality sectors where the mix can be so critical. The occupier is often a good business that is right for the location but may be suffering because its rent or occupational costs are too high or from other factors having a negative impact on its business.
Best advice should be based on analysis of the situation and the agent should consider changes that enable the occupier to reach its potential instead of turfing it out.
However, typical fee structures encourage agents to relet regardless. Worse, fees linked to rents incentivise agents to push rents as high as possible, which could exacerbate the occupier’s problems or create rent levels that are unsustainable. So best advice and fee incentives are increasingly in direct conflict.
It makes no sense, particularly in the current market, for agents’ advice to be predicated on increasing deals at the highest possible rents. Advice needs to take into account a wider context.
Agents should point out when the most appropriate option is to work with existing occupiers and assess the affordability of terms offered and agreed. Success should not always be quantified by the amount of rent paid. Isn’t it time to look at an annual retainer that encompasses strategic advice and reflect average expected transactional fees across a 12-month period?
It makes no sense for agents’ advice to be predicated on increasing deals at the highest rents
This has to make more sense for all parties. If landlords are worried about complacency creeping in, KPIs could be introduced to ensure good advice. If they are still concerned, they should get better advisers.
Sceptics may say this is just a way for agents to generate fees in a thin deals market, but it is responding to a sea change in our markets. Since lockdown, the need to rethink the way we deliver property to meet the needs of all stakeholders has greatly accelerated.
It’s time to explore whether fee structures can be recalibrated to reward better advice, create more sustainable retail and leisure destinations, and improve relationships with occupiers. We need to shift from processing deals to strategic consultancy.
This would allow for good advice and remuneration and facilitate information sharing across a landlord’s portfolio, rather than encouraging protectionism, as advisers chase deals and fees for the element they are appointed on. The greatest benefit could be that occupiers end up in the space that best suits their business.
Rupert Bentley-Smith Is a director of leasing at Bruce Gillingham Pollard
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