Chapter 10 Marketing and Sales Property Development ( 6 th Edition)

1. Chapter 10 Marketing and Sales Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims

2. 10.1 INTRODUCTION • The final stage of the development, and hence the reason for undertaking many of the stages in the development process, is the eventual sale (or lease) of the completed project to a third party.To facilitate this process, marketing is a key yet frequently misunderstood component. • Where possible the dual objectives of the marketing plan will be to (a) sell or lease the completed project as well as (b) achieving the predicted sale price or rental level as originally forecast prior to commencing construction. • Although marketing has a financial cost it has been proved that you have to ‘spend money to make money’. • Marketing must be viewed as a priority that potentially will adversely affect the success (or lack thereof) of every property development. • The significance of the marketing phase has often been under-estimated by property developers who may focus too much on the preceding steps of property development, including land acquisition and construction, rather than maximising the eventual return on disposal.

3. 10.2 MARKETING APPROACHES • As much as there are different land uses, there are a large number of different marketing approaches which are tailor-made for each development. • The underlying aim is to promote the development to potential purchasers and tenants in this target market based on the highest level of efficiency, i.e. not promoting to sectors outside the target market where possible. • It is accepted that a developer has limited resources, especially financial, in every stage of the development including the marketing phase. Therefore the developer must establish a realistic budget to actively market the completed development and be prepared to increase this allocation if deemed necessary. • For a developer it can be frustrating that successful marketing is not an ‘exact science’ and therefore the actual proportion of the development budget spent on marketing will vary between projects. • The amount of financial resources that a developer commits to promotion is often based on their judgement, partly influenced by their past experiences and expert advice received.

4. Discussion points: Why is marketing and selling as important as any other part of the property development process? How has technology changed the way that property is marketed?

5. 10.2 MARKETING APPROACHES 10.2.1 Site Boards and Site Hoardings • Remains one of the oldest and cost-effective means of marketing a property based on the location attributes. Other than the cost of manufacturing there are no costs associated with advertising due the ‘free’ benefits attached to the site. • It is now standard procedure to include all communication mediums including a website address, phone numbers, email addresses and barcodes. 10.2.2 Particulars and Brochures • In today’s increasingly competitive marketing environment practically every property development is supported by particulars and/or brochures of the scheme. Internet marketinghas reduced costs and also the push for sustainability has decreased the importance of hard copy material. • This approach is based on the marketing strategy of AIDA referring to creating (A) attention, (I) interest, (D) desire and (A) action by the prospective purchaser/tenant.

6. 10.2 MARKETING APPROACHES 10.2.3 Advertisements • Advertisements are still considered a cost-effective medium. Usually the advertisements are aimed either directly at potential occupiers or indirectly through their agents depending on the target market. • Adverts are usually placed in the property sections of local and national/international newspapers, as well as various industry property/real estate journals. The internet has quickly overtaken the printing press as the preferred medium for advertising a development due to (a) the lower cost, (b) the wider audience, (c) the ability to update the advertisement instantly, (d) a higher level of professionalism, (e) the ability to identify information about viewers of the website. 10.2.4 Internet Presence • Asuccessful property development definitely must have a presence on the internet in some form or another. • Many developments have their own domain name or web address, which provides detailed up-to-date information about the project and saves the cost of printing expensive colour brochures.

7. Discussion point: Why has the internet become the most popular advertising medium?

8. 10.2 MARKETING APPROACHES 10.2.5 Direct Mail • Direct marketing via post is commonly used as it is targeted and relatively cost-effective. Mail shots are aimed at a very carefully selected list of potential occupiers and the success will depend very much on the compilation of the mailing list and any follow-up procedures. • To be effective the mail shot must reach the right person within the organisation, who is responsible for property matters, and at the right address. 10.2.6 Email Marketing • Email has many benefits including low delivery cost, low maintenance/upkeep costs and the ability to send out bulk emails. • Abalance must be struck between saturating the reader with too many emails and not keeping them up to date with progress. The core aim should be to encourage action by visiting the property development and/or committing to a detailed discussion.

9. 10.2 MARKETING APPROACHES 10.2.7 Opening Ceremonies • For large-scale property developments it may be appropriate to launch the development by conducting a ceremony during the course of construction or when the building is completed and ready for occupation. • In an increasingly competitive environment in the real estate market, developers have had to make their opening event both increasingly imaginative and innovative in order to encourage agents to attend.

10. 10.2 MARKETING APPROACHES 10.2.9 Public Relations • Larger developers (particularly public quoted companies and REITs) place a large amount of focus on ensuring they undertake effective public relations. • Usually they either retain external public relation (PR) consultants or employ their own in-house staff responsible for liaising with stakeholders, the general public and the media. • Through their press contacts the public relations consultants can achieve effective media press editorial at significant stages in the development programme. • Editorial coverage is often offered by a publication or on a website if advertising space has been booked to coincide with coverage of a particular geographical area or a particular type of property. • Promotional material should be on display at every public relations event where either the developer or the development itself is being promoted.

11. Discussion point: List the various types of promotion available and the positive and negative aspects of each option.

12. 10.3 THE ROLE OF THE AGENT • A real estate agent is usually directly responsible for selling/leasing a particular property and they are engaged by the developer. • Although some developers may have their own experienced in-house marketing team, it is not always possible to rely 100% on their efforts alone. Many agents offer certain advantages over an in-house agent and this is an important consideration. • A successful agent must be active and continuously involved in the market place so they are aware of all changes in market conditions. • Adeveloper may employ a national or regional firm of agents operating either with or without the input of a local firm. • It is recommended the agent/s are engaged at an early stage, which will allow them to become thoroughly familiar with the property they are going to sell or lease. • The smarter agents will devote their resources to potential sales/lettings where they have the highest likelihood of success, i.e. not shared with a large body of other agents with associated risk.

13. 10.4 SALES/LETTINGS • After a potential occupier or an applicant has expressed their initial interest in inspecting a property, the next step is for the agent to show it to them at a mutually agreed time. • During the on-going regular meetings the agent/s will be able to advise the developer when it is appropriate to quote terms and financial information (i.e. relating to the final purchase or leasing price). • If the intention of the developer is to fully on-sell the completed development to an investor, it is essential for the leasing terms for all tenants (i.e. tenant risk) to be acceptable to the investment market at which it is aimed. 10.4.1 The Demise • The accommodation space being let needs to be clearly defined; this is known as the ‘demise’. • A decision needs to be made, in the case of an office development, as to whether it is possible to lease/sell only whole individual floors or lease/sell a portion of a floor. • In some instances agents will be instructed to pursue a single letting of a building.

14. 10.4 SALES/LETTINGS 10.4.2 Rent • The developer will usually quote an advertised rental value for the accommodation in consultation with the agent. The developer will also calculate the rent required, which when capitalised at the appropriate market-derived yield will provide the developer with a satisfactory return on investment (ROI). • The developer may consider offering incentives in order to maintain the required rental value for the property. 10.4.3 Lease Terms • The strength and value of the lease (i.e. the income flow) will be linked to the level of perceived risk affecting a reliable source of future cash flow. • Some institutions may, depending on the circumstances, agree to such clauses provided the tenants also agree to the lease terms. • Where the likely tenants are small businesses or sole traders with little or no financial track record, the developer will often be more flexible due to the limited market demand.

15. 10.4 SALES/LETTINGS 10.4.4 The Tenant • The final value of the development will be linked to its ability to earn money and the strength (i.e. reliability and security) of the tenant. • The financial status and background of all potential tenants will need to be checked by the developer to ensure they have the ability to pay not only the agreed rent, but also outgoings related to the property. • Tenancies of different areas (m2) will be more attractive to the varying demands of multiple tenants than if there was only one size available. 10.4.5 Repair Obligations • The responsibility for repairs and maintenance during the term will depend largely on whether the property unit is self-contained. For a single building the sole tenant will usually be responsible for all internal and external repairs. • The landlord’s expenses associated with repairing, servicing and maintaining the common areas will usually be recovered from the tenants, most often in proportion to the area of their demise.

16. 10.4 SALES/LETTINGS 10.4.6 Other Considerations • The development process does not end the once the documentation has been completed and the keys are eventually handed over to the tenant or purchaser. • Even if there is no continuing contractual relationship, the developer should maintain contact with all their tenants or occupiers and provide an after-sale service. It will pay future dividends and help the reputation of the developer in the market, as failure to protect a reputation can adversely affect future proposals although the developer may never find out the reason.

17. Chapter 10 Marketing and Sales Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims