The leading seven consultants of the commercial real estate market adopted the International Standards for the quality of brokerage and consulting services (REABS - Real Estate and Brokerage Standards). Andrei Lukashev, Managing Partner of ILM, member of the RICS Council (Russia and CIS), MRICS, CCIM, SIOR, told in an interview with the editorial board of the Administrative Director magazine about how these standards will work in practice.
- Which REABS rule, in your opinion, can be most critically perceived by Russian brokers and consultants?
- Of course, one that concerns a conflict of interest. When your company holds a tender among real estate consultants, how do you know that a potential winner will protect only your interests, will not take out confidential information beyond the scope of the project, will not directly or indirectly cause damage to your company? Legal and financial consultants are simple: they don’t even consider participating in projects where there is even the slightest hint of intersection of interests with their current or former clients. The majority of Russian real estate consultants are free in their actions, in contrast not only from their business colleagues in general, but also from their foreign counterparts in the real estate segment. For example, in Singapore, the work of consultants is monitored at the state level: unethical actions against the client are severely punished. In our country, the simultaneous work of one department per client, and another department per building owner, is quite common for many companies.
- How rigidly do the RICS standards regulate such relationships?
- On the RICS side, there are no ultimatum that the consultant should represent only one side. But upon the occurrence of such a case, RICS insists on signing a document stating that all parties have been informed of the presence of a conflict of interest and agreed on how to resolve it.
- Another ethical rule that passes practically through the standards of REABS is to provide the client with transparent and reliable information. Are Russian consultants ready to comply with such requirements?
- A year and a half ago, in the framework of the forum of the Ministry of Economic Development of the Russian Federation, the heads of the research departments of the big four companies working in the field of commercial real estate were asked: vacant and rented space, why are they different?". The answer was the following: "It is not profitable for us to operate with the same data." The task of RICS is precisely to tell the Russian market about a special platform that is able to unite its representatives based on common standards, while allowing it to compete with each other without fear for the quality of the product offered to customers. Yes, the implementation of REABS standards in Russia will not happen in one day, but it is supported by the majority of professional companies and has all the chances to positively influence our market.
- Can you tell a concrete example about what a consultant’s job is?
- For example, there are two offices: one is cheaper, the other is more expensive. However, a detailed comparison reveals that the cost of the first object does not take into account important parameters: insurance, indexation, parking, flexibility in relation to the client’s business development plans, etc. But it is these parameters that can seriously change the final cost of the office. Therefore, before the client finally chooses the office, the consultant must insist on an estimate of the total cost of ownership for the entire rental period, and even better, the cost of the workplace.
- What do you mean by the cost of the workplace?
- In different offices, but with the sameoffice space, due to certain architectural or other features, it is possible to organize a different number of workplaces to solve the company's task. For example, in one - 52, and in the other - 62. Accordingly, the cost of the second office, the most efficient from the point of view of the organization of workplaces, will be noticeably lower and more comfortable for the tenant, provided that the technical capacity in the room is sufficient. Therefore, before making a decision on choosing an office, the consultant should recommend the client to make a draft of a planning decision. This approach to the assessment of the premises is important even if the company plans to grow and increase the number of employees in the future.
- What else should a responsible consultant pay attention to?
- Today, more than ever, the issue of transport accessibility of the office is relevant. The consultant can help the customer to deal with this problem. One of the easiest options to avoid staff turnover, which the client will certainly have if the office is located in an inaccessible place, is to determine the segment of the city where the largest number of employees and the most valuable people live, and relate to this data when choosing an office.
Also, another factor that is new to our market has recently intervened in the process of choosing a new office - the introduction of paid parking inside the Garden Ring. Now tenants are especially careful in considering offices that are located not only in this area. Information about the availability of free parking is requested from our consultants and offices located inside the Third Transport Ring, because the Moscow government plans to further develop the paid parking zone.
- Do Russian companies often turn to companies like yours when choosing a new office?
- Russian companies are gradually coming to understand that they need the services of professional real estate consultants. Firstly, it saves time, and secondly, it allows reducing project risks and finding the best financial and quality solution due to analytics and the structured approach of the consultant. The cost of an error during the project is quite high, for example, the penalty for exiting the lease is up to a year of rent, which can even crush a financially stable company, so it is important that the consultant acts not only professionally, but also strictly in the interests of the client. He is obliged to study everything related to the selected office, to know the reputation of the developer and the prospects of the object and environment. Unfortunately, not all companies are able to think for several years ahead, so you should not neglect the services of professionals who will help to avoid such risks. Of course, there are no risk-free solutions, but experts help to foresee all possible problems of the project and find solutions.
Today, it has become much easier to choose truly experienced and honest consultants thanks to the appearance of the Royal Institute of Certified Experts in Russia. And I do not see another organization that could unite professional players of the Russian real estate market and make it as transparent as possible.
- And the advice of consultants - members of RICS are much more expensive than usual?
- No not always. An expert who is a member of RICS is an additional guarantee for a customer of a quality service. Customers in Russia are still only looking at REABS standards, and we hope that in the near future they will demand that their consultants comply with them. Inviting an experienced certified consultant to select an office is more typical for Western companies, but also in the Russian structures today there are more and more highly educated professional employees who value their time, have great experience and help the company to achieve the best solution. Of course, this is not cheap — the consultant’s remuneration is about a month's rent.
- The introduction of standards REABS certainly somehow equalizes the chances of the parties fighting for the client in the tender. Is it difficult for RICS members to compete with each other?
- Let me just say about myself: the professionalism of our team, the desire to promote a high-quality, unique service give me the right not to doubt our success. We work with clients not only during the tender and the project, but also help after the end of our contract.
Often they ask what the rental rates will be tomorrow, is it worth making a decision today or should we wait? And we have proposed a solution: our analysts have developed and are calculating the Rental Expectations Index (ILM REI - Rent Expectation Index), which reflects how the owners of high-quality office real estate objects in Moscow perceive the changes taking place in the market. This index is based on a monthly survey of more than 400 owners of office property. Based on its performance, participants in the rental market can make more balanced decisions: rent now or wait for a more favorable situation. The index shows what will happen with rental rates in the short term. To the owners index indicators give an idea of what the price expectations of other landlords at the moment. It allows you to predict the level of rental rates for the next 3-6 months, since such period is on average necessary to search, select an object and sign a lease agreement.
The index also reflects the speed and direction of the change in rental rates associated with these expectations, and may vary between 0 and 100%. If REI is above 50%, then there is a high probability that average rental rates will increase in the coming months. The magnitude of the deviation from the equilibrium value of 50% shows the strength of the downward / uptrend. A REI of 50% indicates that no changes occurred during the period analyzed. A value of less than 50% reflects the expectations of owners to reduce rental rates. The fracture of the index change graph allows you to predict a change in price trend. Thus, REI allows you to predict market behavior and is fundamental in making decisions in the short term.
- And what is the Rental Expectations Index now?
- In class “A” it is at a low level - 42%, and everyone is waiting for rental rates to drop. And in the class "B +" - 49%, which indicates a stabilization of the rental rate.
- So you think that all participants in the commercial real estate market do not have compelling reasons to refuse to work according to the REABS standards?
- Objective - no, but I think we all have to wait for a long time for the moment when the majority will join these standards. Try to ask your consultant for a confirmation letter that they will not earn from both sides. If customers do not require honesty and professionalism from their consultant, everyone will continue this practice.
- So you want to say that any real estate specialist who has adopted RICS standards will sign such a letter?
- And you ask!
- Well, I'm asking: will you sign?
- Yes, immediately.
Interview for the magazine "Administrative Director". The author - Victoria Toth