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The civil partnership solution

WRITTEN BY Howard Morgan and Jon Lovell
POSTED ON November 14, 2018

Why would managing agents embrace risk or invest in technology when there is no long-term partnership?

Writing in Property Week, Howard Morgan & Jon Lovell offer a six-point solution to the problems of the property industry’s managing agents

The ever-increasing whirlwind of client demands and occupier expectations means the role of the traditional managing agent is in peril and we believe they must embrace risk and innovation if they are to survive.

In our view, challenges are coming from three principal areas:

  • Fickle and savvy customers, who are expecting a more enriching experience, greater flexibility and reliability.
  • Increasing performance, cost efficiency and transparency demands from clients.
  • Enlightened landlords seeking compliance on environmental, social, well-being and health and safety matters.

Bill Hughes, boss at Legal and General Investment Management, recently told Property Week that managing agents are being asked to provide services “they are not equipped to offer” as their role moves from rent-collection and basic maintenance to provider of “customer service, facilities maintenance and engineering, sustainability and CSR strategic thinking”.

In response, property managers MJ Mapp blamed property owners for instigating a tendering process which has outsourced management to the lowest bidder.

Our assessment is that salvation for both parties lies in persuading owners and investors to form strategic partnerships, which means both parties must make a fundamental shift in thinking from the traditional “hands-off” outsourcing model.

We have come to this conclusion because of our combined experiences in the property industry and having been inspired by a visit to John Lewis’s state-of-the-art warehouse in Milton Keynes. Here, you can see collaboration in action, in the form of the company’s partnership with Knapp, an Austrian firm, 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 of the industry must be to marry their interests and to include the following items in the pre-nuptial agreement:

  1. Strategic alignment and planning where owners and managing agents identify a mutual vision and document key areas of responsibility, risk and reward.
  2. Clear agreements and contracts across financial performance, customer experience, environmental responsibility and community impact are vital for a successful marriage. Having these means each partner knows what they must to bring to the relationship and how they are accountable.
  3. Buy-in and leadership from senior management is key. There must be complete commitment from senior executives of both parties and the relationship should be promoted to customers as a partnership of equals.
  4. Effective deployment of capability and technology to encourage best-practice and innovation.
  5. Greater transparency to customers, making openness, honesty and timely reporting a priority.
  6. Close links between performance and reward. Financial rewards should be based on key performance indicators and provide incentives, for example around sustainable practices. The arrangement should also be reviewed regularly, in a spirit of collaboration rather than under the ever-poised stick of re-tendering.

Partnerships are more likely to break down when the parties are concerned only with their own selfish 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.

Dissatisfaction of landlords with managing agents is a key motivation for increasing the frequency of re-tendering. They see it as a way of incentivising performance but it’s part of a downward spiral; a race to the bottom which disincentivises investment in innovation and skills.

There is no doubt that occupiers will become increasingly willing to partner with disruptors like 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’s ultimately the customer who benefits from this marriage and therein lies the source of sustainable, competitive advantage.

See the article in Property Week online here

Click here for more information about Jon Lovell and Hillbreak, a market-leading training and strategic advisory firm whose mission is to expedite the transition to a sustainable policy, business and investment environment by bringing intelligence, foresight, challenge and inspiration to its clients and stakeholders.