Leasing mandates: the limitations of the success fee

Vacancies on the rise, hyper-selective retailers, unpredictable rents and fees: for leasing agents, this means extra work for diminishing results. It’s time for a new approach.

Those who work in this business every day know all too well that fulfilling their mission as a leasing agent now requires a great deal of patience and long hours. Meanwhile, their compensation has declined because it is based on rents that are increasingly difficult to negotiate. The pay-off can even be nil if the deal is not concluded: that is the principle behind success fees. For the agent, this means working more and more, but earning less.

How can the leasing agent blues be avoided? The strategy of the larger firms, generally operating at the national level, consists of focusing on profitable deals only, i.e. assets in prized locations with high rents. The smaller or regional firms occupy the rest of the terrain, taking advantage of their local presence to sign a few exceptional deals. This means that few firms are willing to handle ordinary assets, let alone challenging sites, which unfortunately represent a growing number of assets. Yet that is where owners have the most need: how can the need be met, while ensuring decent income for the agent?

The first answer to the problem involves controlling the chain of value creation. For the agent’s role to be meaningful in an increasingly complex market, he can no longer act like a mere broker. Playing the go-between isn’t enough; he has to be fully involved in the (re)marketing of the asset. This means having the capacity of an organisation that masters the entire chain of value creation within a retail real estate development or enhancement project: studies, marketing strategy, communication and any required investments.

The second answer can be found in a strong presence in the field, preferably linked to the overall management of the site. Having a local presence helps establish a trusting relationship with local officials, the business community, retailers and the press. This also facilitates working alongside the potential tenants to help them with formalities prior to signing the lease, and with franchisers, banks, architects, contractors, etc.

The broadened scope of the leasing agent’s mission calls for a change in the remuneration system. How can the increased involvement of the agent be compensated beyond the limits of the success fee? A better synergy of the resources allocated to leasing and managing an asset would make this possible, especially as concerns the local presence. For the owner, this system would ensure more in-depth work and real results, which is of course the main aim.

Where do digital technologies fit in? Each passing day confirms that digital applications are the best intermediation tool there is! While this may be the death knell of the broker as mere intermediary, it spotlights the value of the meticulous work of the true agent, which should be the single most important criteria for owners.