UK - Real estate managers must resist the temptation to lower fees in a slow economic climate, or risk damaging the industry permanently and prolonging the recession, two veterans of the UK property market have warned.

Speaking at the St Bride's annual seminar in London yesterday, Robert Houston - former chief executive of ING Real Estate Investment Management and principal of St Bride's - said fees as low as 15 basis points were "absolute madness".

Houston's view was shared by former Royal Institute of Chartered Surveyors (RICS) president David Tuffin, who said he would take up the challenge to get industry-wide bodies to speak out against lowering fees.

Tuffin, president of RICS for two years until 2008, told attendees: "I'll say it until I'm blue in the face, this is my fourth recession, and I said it for my previous two: If you cut fees, you prolong the recession."

He said he understood completely if a company was "teetering on the brink of going bust" that there would be a temptation to attract clients through lower fees, but he still dismissed the notion.

"Absolute nonsense - if you don't think things are going to get any better over the next few years, go on holiday," he said, saying that those who believed the market would improve should "stick with the fees".

Tuffin, now a consultant for St Bride's as well as for Tuffin Ferraby Taylor which he founded in 1973, also warned property manager's clients against insisting on lower fees.

He said that those responsible for paying the fees were doing themselves a "disservice" by insisting on cost cutting.

Houston, meanwhile, was highly critical of a recent unnamed separate account deal that had commanded fees of 15bps, repeatedly calling it "absolute madness".

"They used to be 50bps," he said. "Then Hillier Parker, now part of CBRE, in 1992 decided unilaterally they were going to buy business, and they reduced their fees to 35bps.

"It never got back up - the only way it could get back up was if you launched a fund."

He argued that those in the industry did not get paid "Goldman Sachs-type salaries" and recalled that, in the 1990s and at the beginning of the current millennium, employees were essentially second-class citizens.

"If you pay low salaries, you'll get second-rate people, whereas we had been attracting really good people," he recalled, saying that the industry could not afford to attract the best talent available in a time when it needed to deliver good performances.

"If they don't deliver top performance, we don't have an industry anymore," he said. "Please, resist cutting fees - we will."

Topics