Growing and Diversifying Needs for Construction Management in Facility Management

You may be familiar with construction management in the context of a development project. Now, construction managers are needed by property management companies that manage existing buildings.

June 13, 2019

Construction managers needed for renovation of existing facilities

If you are an architect, construction company, or otherwise involved in construction work, you must have heard about construction management. Today, there is a growing need for construction managers. Construction management is a consulting method that originated in the U.S. To put it briefly, a construction manager organizes and coordinates stakeholders in a construction project, including construction companies and architecture firms, and oversees the entire project. In Japan, construction managers have been used mainly for supporting contractees, ensuring transparency in public projects, and coordinating large-scale new development projects. Now they are needed by property management companies that manage existing buildings. Nevertheless, construction management tasks required under a property management contract are limited in comparison to in a development project. The tasks involved are verifying renovation plans presented by drafting cooperators, setting requirements for tendering, selecting operators by holding a tendering and examining the quotes, serving as proxy when signing the contract, and inspecting the construction work. A construction manager mainly undertakes tasks to optimize costs.

Construction managers are expected to take part in property management not only because of the emergence on the market of funds and listed REITs that are, above all, committed to maximizing returns to investors, but also because, taking into consideration the costs incurred in the management and operation of a property, you cannot cut costs any more other than you can with renovations. Thanks to price competition, management fees for property managers have reached rock bottom —they cannot go lower than they are now. The costs of cleaning, security, and facility maintenance cannot be expected to drop as much as before, because labor costs are skyrocketing as a result of labor shortages, government guidelines for work environments and so on. The electricity and gas markets have been liberated, and it has become the norm to switch to a new PPS (power producer and supplier in the liberated market sector) and reduce heating and lighting costs. As a result, it is quite natural that property managers turn their attention to renovating old facilities.

A diversified approach to real estate operations

While the mainstream view on construction management is that it is effective in saving costs, a survey conducted by the JLL Japan Real Estate Operation Services Department, which is involved in property management, suggests that there is demand for construction management for other purposes than saving costs. Osamu Katagiri of the JLL Japan Real Estate Operation Services Department says, as though reciting a fact, “What a construction manager is expected to bring to the table varies by client, and they won’t get be highly evaluated by their clients just by reducing construction costs.”

The roles that construction manager are expected to play vary greatly depending on how the property owner and asset management company approach real estate operation. For example, listed REITs, which own a property long-term, tend to want an optimized mid- to long-term renovation plan made by implementing thorough budget control. On the other hand, an opportunistic fund might intend to sell a property shortly, and expects the construction manager to enhance the occupancy rate of the property through “value-up” renovation, or rectification construction to fix non-compliant parts of a property that may become a roadblock when the fund tries to sell it. Their top priority is not necessarily cost reduction. Katagiri says, “Property owners hope to keep it to a minimum when they revamp their buildings because of the gap between their mid- to long-term renovation plans that they drafted when they acquired the property and the renovation costs that they incur through the operation of it. They don’t want suggestions that they renovate their buildings or construction management plans that focus on quality.” He continues, “Looking toward the future, JLL’s task in providing construction management is to enhance our abilities to meet clients’ diversifying needs related to property operation with flexibility.”

Holistic management capability is a construction manager’s true worth

A construction manager is expected to play a multifaceted role that includes risk management, ensuring compliance, procurement management, contract management, and resource management in team formation, as well as overall management, scheduling, cost management, and quality control. Katagiri was once involved in construction management services for a large-scale renovation, which resulted in cutting costs by over a million yen, and he says about the project, “In that project, the construction manager was expected to have the management capability to oversee the entire project, in addition to cutting costs.” He also adds, “We are running short of construction engineers as well as maintenance staff, and labor costs keep on rising. In this situation, construction managers who only focus on their skills in cost reduction won’t survive.” Going forward, the demand for construction managers will continue to grow, but they need to continuously hone their skills in order to provide “hybrid” construction management services that meet various requirements on a higher level.