The Hidden Cost of Underperforming Property Management

Chakrapan Pawangkarat

Head of Property Management, JLL Thailand

Secretary-General, Property Management Association of Thailand

24 August 2025

Introduction

In the world of real estate, property management is often treated as a necessary line item on the expense sheet. Owners and investors negotiate management fees down to the lowest possible rate, believing that savings here directly improve net operating income (NOI). Yet beneath the surface lies a dangerous misconception: the true cost of underperforming property management is not reflected in the fee—it is reflected in the silent leakage of value across operations, tenant experience, compliance, and long-term asset performance.

What may look like a “minor” lapse—an overlooked maintenance task, a poor tenant interaction, a delayed compliance report—can quietly accumulate into millions in lost revenue and reduced valuation. Let us explore the hidden costs in detail.

1. Financial Leakage That Goes Unnoticed

Higher Operating Costs

When property management teams cut corners on preventive maintenance, equipment lifecycles shorten. A chiller plant running out of tune consumes 10–15% more energy. Pumps and cooling towers wear out prematurely, requiring costly replacements years ahead of schedule. Small leaks in financial performance snowball into large capital drains.

Lost Rental Income

Tenant dissatisfaction, whether due to unresolved service requests or inconsistent climate control, leads to churn. Even a 5% increase in vacancy in a Grade-A office tower can represent millions in foregone rent annually. Underperforming management often does not track or address these tenant pain points until tenants are already preparing to leave.

Inefficiency in Energy & Utilities

In an era of rising utility costs, energy inefficiency is a silent killer of NOI. An office building operating 15% below benchmark performance translates directly into wasted expenditure—every kilowatt wasted is money left on the table.

2. Reputational and Market Value Erosion

Tenant Experience as a Value Driver

Modern tenants evaluate buildings not only on location and fit-out, but on the quality of service. Poor response times, malfunctioning amenities, or visible neglect erode trust. In the age of social media and tenant review platforms, reputational damage spreads fast, influencing leasing decisions.

Valuation Impact

Property valuation is directly tied to NOI. A building that consistently loses tenants or operates inefficiently will show weaker numbers, reducing its appeal to investors. Underperforming management effectively erodes capital value—what seems like operational negligence today becomes a major financial discount tomorrow.

ESG & Certification Risk

Green building certifications (LEED, TREES, WELL) are increasingly linked to financing opportunities and tenant attraction. Weak operations compromise sustainability metrics, making it harder to retain or achieve certifications. The knock-on effect is exclusion from green financing channels and sustainability-focused investors.

3. Hidden Risk Exposure

Compliance Failures

Property management is responsible for ensuring safety, environmental, and data compliance. Underperforming teams that neglect fire drills, skip inspections, or mishandle PDPA compliance expose owners to fines, lawsuits, and reputational damage.

Business Continuity Risks

Poorly managed properties are ill-prepared for crises. Floods, fires, or earthquakes cause longer downtimes when there is no tested continuity plan. Tenants who lose business during extended disruptions are unlikely to renew.

Insurance Costs

Insurers are increasingly data-driven. Poor management records or repeated claims raise premiums. Worse, insurers may restrict coverage, leaving owners financially exposed when disaster strikes.

4. Human Capital Drain

Staff Turnover

Frontline technicians and customer service staff suffer most when leadership is weak. High turnover drives recruitment costs and disrupts operational continuity.

Productivity Loss

Disengaged staff under poor managers perform at minimum effort. Work orders take longer, maintenance standards fall, and tenant complaints rise—all compounding inefficiencies.

Loss of Institutional Knowledge

When experienced technicians leave, years of tacit knowledge about the building’s systems vanish. No digital system can fully replace human know-how accumulated on the job. Underperforming management fails to capture and transfer this knowledge effectively.

5. Opportunity Cost

Missed Technology Adoption

Forward-looking management integrates digital tools: CMMS, IoT sensors, digital twins. Underperforming teams resist adoption, leaving properties lagging behind competitors that achieve better efficiency and tenant experience through technology.

Tenant Mix Quality

High-performing tenants—multinationals, ESG-driven corporates—seek buildings that reflect their values. Poorly managed properties fail to attract or retain such tenants, filling space instead with short-term or lower-quality occupiers.

Strategic Stagnation

Instead of evolving into a “green, resilient, smart property,” the asset remains a commodity office with declining appeal. The true cost is not just today’s leakage—it is tomorrow’s lost market relevance.

6. Strategic Implications for Owners and Investors

Owners must recognize that property management is not a cost center to be minimized, but a strategic lever for asset value creation. Effective property management:

• Protects NOI by optimizing operations.

• Enhances tenant retention and satisfaction.

• Safeguards compliance and mitigates risk.

• Drives ESG alignment and green financing eligibility.

• Sustains asset valuation in an increasingly competitive market.

Choosing the lowest-cost management solution is a false economy. The fee saved upfront is dwarfed by the hidden losses in value.

Conclusion

Underperforming property management is a silent drain on financial performance, reputation, compliance, and human capital. Its costs remain hidden until they surface as lower valuations, tenant churn, regulatory penalties, or missed opportunities in sustainability and technology.

Forward-thinking owners and investors treat property management not as a commodity service, but as a strategic partner that safeguards long-term value. The real question is not “How much does management cost?” but “How much value does effective management protect and create?”

In today’s competitive property market, the cost of underperformance is simply too high to ignore.