Commercial vs Residential Property Management: What’s the Difference?

There are many differences between residential and commercial property management. Usually, new businesses in property management start off with residential properties. That’s because it’s a simpler market to get into. But over time, a lot of these enterprises transition partly or wholly to retail and commercial spaces. There are many things to learn before this transition, especially about the challenges in commercial property management and how software for commercial property management can help you out with them. In this blog, I will cover the key points.

1.Tenant expenses. In addition to the base rental fee, commercial building tenants need to pay some or all of the expenses related to real-estate ownership. These expenses (can be called “three nets” or NNN) consist of property taxes, insurance and maintenance fees. There are several types of commercial leases, such as:

• Triple net – requires the tenant to pay the net amount for all three types of costs (real estate taxes, building insurance and common area maintenance (CAM) fees).
• Modified net – a compromise between gross lease and triple net. The property manager and tenant usually agree to split the maintenance expenses, but the tenant pays for the real estate taxes and insurance.
• Gross lease – In this case, the landlord collects the fixed rental fees and pays for all the expenses out of them. These contracts usually have many clauses that may increase the rental fee to cover increased taxes or insurance for the landlord.
• Percentage lease – mostly used in shopping centres and retail malls. It typically requires a lessee to pay the base rent and on top of that amount, pay a percentage of their sales volume.

These leases are much more complex compared to residential leases. In cases where you collect a fixed amount for CAM fees every month, you need to do an annual recalculation based on what you have received vs actual expenses. Residential rental rates are typically a fixed amount per month or other price period plus the utilities payed based on consumption. Does your software allow you to deal with all calculation situations and easily calculate the correct amounts for the tenants? Soft4RealEstate does.

2.On-Site manager and maintenance. In large office centres or shopping malls, it is necessary to have on-site managers who can deal with tenant requests or take care of other issues. In some countries or US states, this is even defined by law. To track all the requests and work orders, you need to have a system that is easy to use for both the manager and tenant. It should be easy for the manager to track all ongoing tasks, view the work schedule, and change statuses. On the tenant’s side, it should be clear when and what will be done, and when any work can be expected to be finished. While renting apartments, you can have maintenance vendors and tenants usually deal directly with them without property manager interruption.

3.It’s just harder to find tenants. As of late, you have probably heard that residential real estate prices have been skyrocketing, both for buyers and renters. However, commercial property owners haven’t experienced quite the boom like their residential counterparts.

The tendency has been quite an opposite, frankly speaking. As the pandemic came about, more and more small or mid-sized enterprises became more vulnerable to restrictions and fast-changing conditions. Hence, they invested heavily in remote workspaces and reduced their spending on office space.

For commercial property owners, this means that they should rely on their software for commercial property management even more. Generating reports more frequently, following up on leads, and analyzing pricing plans as well as sales indexes is becoming increasingly important. With capable property management software for commercial spaces, you can better adjust your business and increase your market share, even during harder times.

4.Much more social responsibility. People expect businesses to lead the way in all kinds of initiatives. Right now – eco-consciousness and social responsibility seem to be the key focus on many businesses’ agendas. This is why tenants are looking into renting carbon-zero, sustainable workspaces that help reduce carbon footprint. Thus, you need to worry about maintenance and innovation. Smart solutions for lighting, energy-efficient appliances, and climate control, as well as bidding software for commercial maintenance (e.g. cleaning, repairs), can help your office space have more USPs (Unique Selling Points) for potential tenants. If they can see that this looks good on their brand, they’ll definitely seem more interested.

5.An emergence of a completely new type of customer. For residential purposes, the most concerning changes are related to taste. So interiors and exteriors (that are considered in-style) change quite a bit. But at the same time, 100 or even 200-year old buildings can easily be chic places to live in. On the other side of the spectrum, you have commercial property managers that are facing increasing demands from their tenants (and subsequently demands from their tenants’ customers) to create something genuinely unique and extravagant, even.

Although businesses were always eager and open to newness, the modern information age has made retail consumers much harder to please. The world, as we know it is undergoing significant changes and is being reimagined right before our eyes. Customers want to feel much more experience when visiting a shopping mall, for example. They want to experience something that is entertaining and exciting. As a direct result, experimental consumerism has become a huge focal point for property developers and managers. Commercial property managers should rely even more on software. Whether it’s a small business or a large one, tracking metrics can help determine whether your space is in need of renovation or whether you need to re-profile your target client market.

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