However, the landscape for the industry is now changing. It is being shaped by both internal and external influences. 

Externally, today’s “compensation culture” burgeoning in our “litigious society” has meant that those flat owners who have previously been prepared to manage the block on behalf of their fellow flat owners are now in a much more precarious position. There are plenty of circumstances in which a property manager may find himself where his decisions will affect other flat owners or contractors, leaving them open to criticism, even legal action. Why would a flat owner put him/herself at risk by embarking on such work? Work that is unremunerated.

The internal factors affecting the industry revolve around the mountains of new legislation that property managers now have to work within. Legislative changes to accounting procedures, tendering and health and safety issues relating to asbestos (to quote just one example) all serve to increase the liability that property managers are taking on. For blocks that are self-managed, this legislation makes an already unappealing role even less attractive. 

These changes in the market conditions are all pointing towards the need for highly knowledgeable professionals to manage blocks of flats. Whilst managing agents are beginning to understand this, generally the industry is proving rather slow to adapt to the conditions. There is clearly a need for high quality property management and this should be repeatedly conveyed to flat owners. 

The marketing challenge

Why is the industry so slow to pick up the pace? Well – it is fair to say that the legislation passed with the Commonhold and Leasehold Reform act 2002 has caused huge upheaval for many managing agents. Quite rightly, agents may be adjusting their internal processes to meet the new changes before actively going out to market themselves vigorously. This is correct, as it makes sense to get your product right before going to market. As in any industry, some managing agents are more adept at marketing than others. However, even the most skilled marketers will be tested by the product / service that is block management. 

The market is a highly unusual one because the customer profile does not conform to predictable models applicable in other industries. The service bridges two very different models in that it falls in between the business to business market and the consumer market. The managing agent for new apartment schemes is normally appointed by the developer to manage that scheme. To win an instruction from a developer, this is clearly a business to business market environment that the managing agent is competing in. However ‘right to manage’ means that the end users – the flat owners, are free to appoint any managing agent they choose once they have gone through the necessary procedure. This means that managing agents need to appeal to - and market themselves to - consumers as well as industry clients. Given that the existing blocks of flats market is larger than the new build market it is arguable that the end consumer, or leaseholder/ RTM company is a more important prospect. It is a prerequisite that agents can accommodate that.

This is the difficult challenge for agents. The potential market for the block managers is very large. Estimates vary, but there are in the region of 1.2 million privately owned flats in England and Wales. The vast majority of these flat owners are now free to choose their own managing agent. However, changing or selecting the agent is likely to be a collective decision making process. When marketing to other businesses, it is quite easy to identify the decision maker in any organisation you are targeting by simply making some basic enquiries. Not that simple for managing agents targeting new business. It is almost impossible to know which resident in a block of flats will be the person likely to lead and co-ordinate the other residents in the negotiations to change their managing agent. Therefore, managing agents need to raise awareness of their service as much as possible and across as many different channels as possible to get the attention of those latent decision makers.

Promotional strategies and costs

There is a cost attached to raising awareness and most managing agents have very limited resources. In some ways, the block management industry is still at the embryonic stage in terms of the new market conditions created by CLARA 2002. The industry is overseen by the increasingly credible Association of Residential Managing Agents (ARMA). ARMA has tackled the legislative changes and provided useful support for its members during difficult recent transitional times. 

However, some parts of the new legislation are over two years old now. The next logical step would be for ARMA to launch a national campaign to raise awareness of the block management industry it represents. The likely communication channels would be the traditional mass marketing media such as television, print, radio etc. Block management is ultimately a consumer service. If targeted properly, a generic industry campaign will reach those decision makers who are presently so hard to identify. Raising awareness of the block management service would also create new decision makers who may have been previously unaware of the choices now available to them.  

Mass marketing can be very expensive. The cost of a fully integrated marketing campaign would almost certainly be too expensive for an individual managing agent which is why, at this point in time, it is more sensible to let the professional body, ARMA lead the campaign. ARMA members would of course have to finance the promotion. Once the profile of the block management service is raised, it is then much easier for individual managing agents to carry out their own specific marketing plan on the back of ARMA’s activities. This combined approached will also increase the effectiveness of the managing agent’s promotional message.

This is the perfect opportunity for managing agents to develop and grow their brand. Some progressive agents are attempting to increase their brand awareness in the market place but there are still no strong brand leaders emerging at the moment. Most leaseholders can name a major letting or estate agent, so it should not be hard for a managing agent to emulate their success. It is true that managing agents don’t have the use of sale boards or heavy advertising budgets that estate agents have access to. This should not deter the more imaginative managing agents. There are plenty of opportunities to increase awareness of the brand if the matter is considered in detail and creatively. Managing agents should look at the marketing practices in other industries, such as direct mail, telesales, sponsorship and seminars. They should then ask how these techniques can be applied to the block management business. Any organisation that gets their branding right automatically achieves an immediate advantage over their competitors. Good branding can be very, very powerful. 

Several of the well known property firms, such as Cluttons and Knight Frank have given up on block management and disposed of their residential management arms. There are not vast profits to be made from block management. The work is surprisingly difficult and the fees are notoriously low. Many leaseholders do not have a realistic understanding of the role of the property manager and the amount of work involved. Although it may seem questionable to leaseholders, it is in everyone’s interest that management fees are increased across the industry. Service charges are understandably a grudge purchase. However if you own a flat, service charge is totally unavoidable. The managing agent’s fees need to be put into perspective. Their fee is only part of the service charge that the leaseholders pay. A leaseholder may resent paying, say £200 a year in management fees to the agent out of their service charge. Objectively, leaseholders should look at the cost of some other living expenses. How much does a plumber charge for a days work if the boiler breaks down in their flat? How much does the local garage charge them to service that ever diminishing asset called the car? In both cases, it is almost certainly more than £200. £200 is an arbitrary figure and may not represent the average annual management fee. However the point is that, given that a flat is a substantial and an appreciating asset as well as, hopefully a pleasant home to live in, leaseholders should see the sense in paying a bit more to ensure it is maintained to the highest possible standard. 

At the moment, the quality of service provided by many managing agents is questionable but this could be improved if they charge higher management fees. Higher fees may well increase their profits but a sensible agent will see greater long term profits by investing additional management fee income into their business to improve their service. Higher fee income will allow the managing agents to put more resources into the blocks they manage. This means that leaseholders problems will receive closer attention and the property managers will have more time to manage the service charge budgets more efficiently, which in turn should produce cost savings. The better the management service, the better maintained the block will be, which is beneficial to all the flat owners. It is critical that ARMA and the individual managing agents get this point across to leaseholders. A residential managing agent has to be available twenty four hours a day every day for the fee that they earn. If leaseholders ask themselves, how much would they expect to be paid annually to provide that level of attention to a client then the point becomes clearer.        

As in any industry, the customers’ needs will shape the conditions that will determine how service providers prosper in the market place. The unique conditions of the block management industry do, however, require a major effort by all participants to kick start the improvements that are sought by everyone in the industry. Those managing agents fastest on their feet and able to dance to the customer’s tune the best will be the winners. 

  Darren Pither is Director, Grays Inn Estates Limited Telephone: 020 7428 7888 Fax: 020 7267 2275 www.graysinn.co.uk