Commercial Property Management in Shanghai
Property management is one of the most neglected of all aspects of investing in the Chinese real estate market. In traditional Chinese residential complexes, the main function of “property managers” seems to be to smoke and drink tea in the entry way. Commercial and retail property management are not much better and leave many commercial properties in China with rent rolls running into the minus 40% or more of capacity. This is mainly due to the fact that a large percentage of new developments are being built by state owned enterprises with no prior experience in the real estate industry. Adding to the complications is the fact that, due to the non-existence of property tax until now, many landlords are happy to leave a property vacant waiting for the value to appreciate and are, therefore, unwilling to pay even a small fee for management of their property. Thus putting the remaining tenants in a difficult situation. Any refurbishment must be arranged ad-hoc among tenants with no manager authorized to make decisions. Therefore, the landlord who opts out of paying wins. For example, if some tenants want to refurbish an entry way the most interested party must convince the remaining lessors to the value of said reconstruction. As is often the case, one party does not agree and refuses to pay, the others have no choice but to either pay his share or discontinue the restoration.
Also, in Shanghai the nascent property management industry focuses on tenancy and simple maintenance of the property. Yet as the industry quickly develops value added services are increasingly in demand. Many foreign property management firms are hustling to find innovative security, energy conserving and sustainable while creating an environment that attracts high value tenants.
According to Marion Wu, property management specialist with Serviced China, the industry is increasingly challenging. “Chinese real estate developers are no longer satisfied with cleaning and security. They demand high quality food delivery services a level of clubhouse the rivals or exceeds the quality of private gymnasiums in Shanghai and even require organized activities for residents of the complex.”
In addition, many commercial clients are paying lower fees despite the steep increase in the quality of services. This is creating a squeeze that is especially tough for low quality, inferior management companies that do not have specialized knowledge with high value building materials. With these superior materials, the risk is higher than in older Chinese developments where things can be easily and cheaply replaced. In one designer shop in Lujiazui, windows are rumored to cost over $150,000 each and be extremely complicated to clean. This leads to longer hours and the need for specialists to be available 24-7. The high value environment also requires property management staff that have people skills as they will often meet high end clients either in expensive Chinese shopping malls, famous brand shops in ICF mall or class A commercial properties all over China.
Thus in what was recently an industry filled with standard workmen is increasingly being filled with friendly, bi or tri-lingual, university educated women with high writing and calculation ability. This mirrors many other industries in China and is leading to the perfect storm of many companies in several industries searching for the same skills sets. Serviced China has a very effective training program in which professionals from overseas hospitality experts bring new staff up to speed in quality, financial skills and even ethical behavior. Students that pass the written exam are given certificates and are eligible for further training as regulations change and new trends emerge.