I’m just back from the future!
When I started in this industry leasing services were a big thing, a major business element for property management firms, and a significant source of revenue for many consultants. Vacancies were high in the less desirable buildings—can you imagine 5% or 10% vacant in Toronto? That’s what it was like, and landlords were willing to pay a month’s rent to a leasing expert to fill those units.
Over the past decade, though, leasing almost vanished as a business, as vacancies in the larger markets shrank to historically low percentages. Property management firms kept doing their normal, ongoing leasing, but demand outstripped supply and it’s been a landlord’s market for many years now, so much so that vacant units almost fill themselves.
That’s changing, at least at the upper end of the market. New purpose-built rentals are finally being built, not in big numbers, but big enough to spur increased competition for landlords and increased choice for renters. For developers bringing a new rental building to market, especially in expensive-to-build and expensive-to-rent markets like Toronto, the challenge is to achieve full occupancy as quickly as possible at the highest rents possible. With more and more options to choose from, at higher and higher rents, prospective renters are discovering that they can be picky (if they have the money). For developers this means leasing is once again something they have to take very seriously, which means they need leasing experts. The challenge for leasing experts is to convince prospective renters to rent in their client’s building instead of competitors’ buildings.
What does this bode for the future? Will leasing services revive as a business? If so, what form will they take and what role will they fill?
I think, given the challenges I’ve described above, that leasing services are set to become an important part of new rental housing development in the near-term and mid-term future of the industry. Put simply, the worries of developers and lenders are only going to grow as competition and investments grow, and those worried developers and lenders are going to turn to leasing experts to make sure leasing gets done right because the downside of getting leasing wrong keeps increasing steadily. What about the long-term future? I think technology is going to play a bigger role in leasing, which won’t replace leasing experts but will give them a host of tools and support they don’t have now (I’m working on concepts for this and I’ll talk about them in a future post).
Let’s compare how leasing used to work, and how I think it will work in the future.
In the past:
- leasing experts were usually brought in only when a building was approaching delivery
- leasing experts worked mostly independently
- leasing experts supplied ancillary services usually in-house
In the future:
- leasing experts will be involved from the beginning of project design and project planning
- leasing experts will manager other experts and suppliers as partners and sub-contractors
- leasing experts will manage the marketing and leasing from beginning to end (similar to how a general contractor would for the construction element)
- leasing experts will manage staffing (for the leasing component)
- leasing experts will manage or work with property managers, maintainers, and cleaners
- leasing experts might take on some project risk (as part of incentive-linked compensation)
Instead of being contractors brought in to handle one element of the development of a new rental building—the leasing—and being paid a flat fee or performance fee for that service alone, I think leasing experts are going to become a form of ‘general contractor’ for the lease-up (preparation and execution), taking charge of all aspects of marketing, leasing, staffing, cleaning, and maintenance to ensure profitable occupancy is reached.