How much importance does PM have within the real estate sector? Is there room for further cost cuts? How to save money on electricity? Interview with Gabriella Fábri, Head of Property Management at ConvergenCE.
You recently joined the team of ConvergenCE after previously working for EC Harris. How did you define your mission, when you joined ConvergenCE?
I joined the ConvergenCE team as head of Property Management almost a year ago. My primary task is to operate the Eiffel Square Office Building to maximum efficiency. Our team is small, but well prepared. We have an outstanding professional for every area required, someone who is able to get the most out of every given issue. We all love the building and our tenants. Hence, we can provide Eiffel Square Office Building with outstanding and efficient operation and see that our tenants feel that they are special.
How much weight or importance does property management have within the sector?
The market has become quite wide; with the market slowdown, developers and consultants alike are trying to find themselves new jobs that can provide a rather limited, but steady and secure income. Property management (PM) is closely related to technical operation, which is a key area for operation. At the same time, it is also important that a building is supervised by a professional that knows the other aspects of PM, too. It is not enough, for example, if one knows that boilers need to be maintained or that the inspection crew knows what to pay attention to, one also has to know how to coordinate these activities and what level of quality and price should be provided. The PM has a key role that includes the responsibility of ensuring tenant satisfaction, invoicing and collecting rent, operating income, monitoring the building’s operation, and preparing detailed reports for the owner. The PM is the primary contact between the tenants and the owner or asset manager. By obtaining green certification (Eiffel Square Office Building is BREAM certified), we have met both our tenants and owner expectations. Yet, life cannot stop here. The operation itself also needs to be green. This can be achieved through our daily communications; for example, we prefer sending our tenants emails [as opposed to print communiqué] for environmental reasons. The same is true if we are resolving on some serious technical issue for the building or if we “just” want to highlight an issue like our light bulbs and how they could be operated more efficiently in terms of sustainability. There is a lot of new technology in this field and we need to follow it in order to decide where it’s possible to apply it.
How much rent they need to pay is still the most important topic for tenants, yet, the service level and the price of this service is also equally important. How homey the office is tends to also be key, as people spend the majority of their time during the weekdays in the office. Once, I worked in an office space with fluorescent lighting. Replacing fluorescent tubes cost serious money, so, as it were; we had to work for days with one fluorescent light blinking continuously. I don’t think this is A-category property management. It is really sad if, in your effort to reduce costs, you forget about the tenants. Tenants are a building’s main assets and, in Eiffel Square office, everything is done in their interests.
Thus far, what has been your experience as Head of PM at Eiffel Square Office Building?
This is a relatively new and very high-quality building, located at a unique site and in a unique surrounding; one that we have to adapt to every day. But, that’s a good thing. The building is special as 97% of it is rented out and our tenants are renowned Hungarian and international companies who demand high quality services. ConvergenCE operates within a relatively narrow segment as operator. We aim at providing quality service and a reasonable price-per-value ratio. It’s the third year in a row that we have prepared the operating account settlement for our tenants, which most of them confirmed our rate as realistic and accepted it without any question. Of course, there are those who will analyse our account settlement in more detail. Just today, we terminated a contract with one of our tenants and provided such a detailed negotiation that I can proudly say this tenant left fully satisfied; everything was well in order.
What type of details are tenants mostly interested in?
Tenants recognize which items are increasing year-on-year and which expenses have increased in our detailed account settlement. Of course, they ask for explanations. It’s no secret that the Budapest District VI property tax significantly increased in comparison to last year, which itself is a major cost. For some items, we raised the service level and this costs a little more, but, on the other hand, we can provide a faster response and wider range of services to our tenants. We work with a fully “open book” and our cost increase was well below inflation.
Has the market reached rock bottom or is there still room for further cost cuts?
There will always be new opportunities for optimizing operational costs. For example, utility service providers can be tendered. Market developments should be followed throughout the whole year and good opportunities must be used. Just one to two months ago, the electricity market was at such a low that we were already able to cut a deal for 2014’s electrical supply. We managed to get a price that is below even last year’s level. This is an excellent opportunity for cost reduction. Electrical costs make up approximately one third of the total operational costs; thus, we managed to achieve a considerable reduction for 2014. In my opinion, we are far from having exploited all the possible opportunities for operational cost optimization, even if we think we’re doing very well. Science and technology is constantly evolving and we can, and have, to live with this. There is always room for improvement; we have to keep our eyes open, in order to get better day-by-day, to upkeep and improve our quality, and to closely monitor costs.
Have tenants become more conscious since the crisis?
On one hand, tenants have evolved with the market and, on the other hand, they have gained experience. As apartment tenants, they have little experience with, and few expectations towards, office buildings. Firstly, it is clear that they ask for offers from different places. Then again, it has become increasingly common to hire an expert for the search. This expert may not necessarily be a real estate consultant, however, as there are also examples of when tenants have looked at office buildings with a technician. The level of costs is, of course, the most sensitive topic of a negotiation.
How much value can a facility manager add to an existing building?
Finally, the time has come to say: intergenerational buildings are on the market. Eiffel Square Office Building utilizes the latest air-handling system. However, there are many older building where fan-coil units are on the sill. The same level of comfort simply cannot be achieved employing this outdated system. What can an operator do with this? Possible options include: exploiting the engineering options, changing the temperature of the supply air, and simply trying to meet expectations. It’s not easy, especially in a building where windows cannot be opened and the system is old. Demanding owners have acknowledged this and have started re-developing their existing, less modern buildings. In addition to engineering solutions, it is also important that men and women follow the same dress code in offices. That would solve a lot of problems (especially during the summer), however, this is no longer falls under the PM’s jurisdiction but within HR.
Tenants are now gravitating towards modern, high-quality buildings. Old, outdated buildings are emptying out and new ones are filling with tenants. Do you agree that, despite the 25% vacancy rate, there might be a lack in high quality office spaces?
I think this has been the case already for some time. Even in the past, when hundreds of thousands of square meters of new office space was yielded, buildings belonging to the ‘first generation’ featuring bad locations, faulty distribution, and empty technical parameters. The situation has only escalated since then. Buildings that, at the time, did meet the criteria have likewise joined this group, as expectations and the range of selection have greatly increased since then. For me, it is surprising to see that, even during the crisis, there were developers and investors who chose to construct low quality buildings in secondary locations.