Young Professionals Corner
Examining Global
Fee Structures
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By: Andrew Smith, SIOR, FRICS, MBA
Commissions, fees, remunerations, charges, whatever you may
call them, they are the basis of which brokers (agents/advisors
as the Europeans say) are awarded for their services of acquiring or disposing of commercial real estate. Surprisingly, it’s an
area that receives little press and is not particularly prevalent.
What may be a good fee arrangement for one country, for
one SIOR, or for one client, may not be for others. The purpose of this article is not to discuss “what is right or wrong,”
or "what is value vs. what is not valuable” but to highlight the
various forms of remunerations and a few of the varying global
structures.
The U.K. is one of the few systems in the world where two
separate fees are paid, one for the landlord broker, and one
for the tenant broker. This is distinguished quite clearly to prevent conflicts of interest. Almost all the rest of the world has a
single fee system where one fee is paid by the landlord/vendor
and the fee is then agreed between the landlord’s agent and the
tenant’s agent if there is one. There are some countries, Japan
being an example, where the tenant broker is also paid by the
landlord and the tenant.
A major difference between Europe and the U.S. is that in
the U.S. remunerations are paid on a continual basis across
the life of a lease, whereas in Europe it is normally paid as
an up front single fee based on the first years rental. Clearly
the former rewards the broker for agreeing a longer term lease
arrangement, which is clearly more beneficial for the landlord
who has less void risk in the future.
For the most part fees are based on a percentage which in
Europe can be anywhere between 7. 5 percent up to 25 percent
of the first year’s rental. Brokers will often exclude any incentives that may be granted. To the left is a table of the various
percentage fees across Europe – these are pretty general.
In the U.S. brokers are often paid a single fee which will
potentially need to be shared with the tenant’s fee. Fees can
generally be 5 percent to 8 percent per year, but are calculated
on a different basis. For example Chicago is based on $1.25
per sq. ft. x floor area x the number of years of the lease commitment. Others Cities vary +/- of the $1.25 per sq. ft.
In Asia fees are generally based on one month’s rent but are
subject to the market and the conditions and often increase to
two months’ rent depending on the over supply and the landlord. These are obviously fairly large generalisations and there
are obvious distinctions. Often clients will try and reward brokers to focus more on their properties to help.
Of course fees for sales vary depending on the scale, from
say 0.5 percent for a prime Central London Investment to say 5
percent for a standard warehouse in Germany. The later could
also involve a fee share between the buyer and sellers agent.
There are alternative fee options from fixed fees to percentage
rates per sq. ft., some alternatives are shown in the table to the
left.
With SIOR it is important that we adapt to global market
conditions and variations and it is clear there is no standard fee
arrangement. Sometimes percentage rates just cannot work;
i.e. in a situation where we have particularly difficult products
