Challenges and Issues for Commercial Property Managers

Commercial real estate presents unique challenges for property owners and managers. Since the pandemic, this sector has been deeply affected by the socio-economic context.

This article explores the distinct challenges within this area of property management, including commercial leasing, common area maintenance, and meeting the specific needs of business tenants. We will also highlight key trends in the commercial real estate sector.

The World of Commercial Real Estate

Commercial real estate is a broad field that includes any space used for business purposes. This covers:

Office buildings
Retail stores (shopping centers)
Logistics warehouses

At the heart of the economy, this sector is driven by various stakeholders such as investors, real estate firms, and investment funds, which play a crucial role in the vitality of local and national markets.

The economic value of the commercial real estate sector is substantial, with transactions reaching billions each year, mostly concentrated in urban areas and business centers.

However, property owners have faced significant challenges in recent years.

Current Trends in the Commercial Real Estate Market

Commercial real estate is heavily influenced by societal trends, including the economy and consumer behavior.

Factors like rising interest rates, remote work, and e-commerce have had negative impacts on the sector, increasing vacancy rates.

According to Georges Semine, Vice President at Deloitte Canada, the pandemic's effects will continue to influence commercial real estate for years to come.

Economic Activity and Commercial Real Estate

Rising interest rates and increasing financing costs have hit the commercial sector hard, alongside economic conditions and the growth of e-commerce. Shopping centers have had to rethink their business models to stay attractive.

In Montreal, commercial spaces along retail arteries have still maintained high occupancy rates, despite these challenges.

Impact of Remote Work on Commercial Space Occupancy

The pandemic forced many companies to adopt remote work. As of 2024, an average of 40% of workers still telecommute (either in hybrid or full-time modes).

This has led to a reduced demand for office space, especially in urban areas, resulting in record vacancy rates of over 16% in Montreal.

Some experts believe vacancy rates may continue to rise.

The office leasing market has seen an increase in supply, creating a tenant-friendly market, in contrast to the residential sector’s shortage. In this environment, commercial tenants benefit from more favorable terms. Commercial property managers must remain competitive to reduce vacancy rates.

Three Key Challenges in Commercial Real Estate

In the dynamic world of commercial real estate, space managers face unique challenges. This article will focus on three main issues that require expertise and finesse to ensure profitability and tenant satisfaction. These challenges include negotiating complex leases, managing shared spaces, and addressing the specific needs of business tenants.

Long-Term Commercial Lease Negotiations

Negotiating commercial leases is a delicate dance that requires a deep understanding of contractual terms and the needs of both parties.

These agreements, often spanning many years, must balance profitability for the property owner and viability for the tenant.

Managing Common Areas

Shopping centers and other shared structures pose the challenge of keeping common areas in top shape. Cleanliness, security, and the functionality of these spaces directly affect customer experience and perception of the property. Effective management is therefore critical to attract and retain both visitors and tenants.

Meeting the Specific Needs of Business Tenants

Each business tenant comes with a unique set of needs, whether in terms of spatial layout, technological infrastructure, or flexible operating hours. Adapting to these demands while adhering to lease terms is a constant challenge for property managers, requiring a tailored approach for each tenant.

Boosting Property Management with Digital Technologies

In a constantly evolving market, real estate management software has become essential, helping managers overcome the sector's challenges. These technological tools offer significant support by: