By Bernhard Klein Wassink
What do commercial tenants want? Here’s a clue: often rent reduction isn’t the top request. A GE Capital Real Estate survey of more than 1,200 tenants across the U.S., Spain and Sweden says hands-on service, communication and fixing problems drive satisfaction.
Most important, tenant satisfaction translates directly into higher renewal rates.
As the commercial real estate sector continues to be challenged, investors are looking for new ways to maximize the value of their assets. In order to do so, owners and managers have redoubled efforts to retain quality tenants.
The reason is simple: the financial rewards of strong tenant relationships can be significant. In this economy, replacing a tenant is a difficult and unprofitable event. But how can an owner know if tenants are satisfied – and how can he know what to do to boost satisfaction?
To be a landlord of choice, owners and managers must actively reach out to tenants, ask substantive questions – and be prepared to act on what they learn.
Surveys are powerful tools to get feedback from a range of tenants. Careful crafting yields real insight. Questions might include: “How satisfied are you with response time from your property manager?” “Would you recommend this property to others?” “How likely are you to renew your lease?”
Surveying customers isn’t new, but developing actionable insights is still rare. The biggest reason? Until commercial real estate began its downward slide, many owners and investors focused on buying and selling, rather than a long-term strategy to build value in their properties. To cultivate loyalty that leads to renewals, owners must provide better and quicker service, improved communications and solve problems for tenants fast.
A tenant survey should address a variety of issues, from frequency of communication to maintenance, intent to renew, sustainability and response times. Tenant bankruptcies and reduced need for space are real factors, but existing tenants still have high expectations. The high response rate to a recent GE Capital Real Estate survey – just over 50 per cent – proves tenants want to be heard and to have concerns taken seriously. (The survey, part of the company’s tenant-loyalty program, included properties in North America and Europe.)
There is a caveat. Owners shouldn’t seek tenant input unless they’re willing to take action. If tenants identify problems that aren’t addressed, they’ll be frustrated and angry. That’s why a plan, with follow-up and communications, is critical. Share survey results and reports with property managers, portfolio managers and asset managers, among others.
Right now, spending capital to make tenant improvements wisely is very important. What can an owner do to get the most bang for the buck?
One solution is to spend in a targeted way. Survey data, for example, revealed a pattern among buildings in one market. Tenants were dissatisfied with slow response to “quick-fix” problems, like minor painting, signage, plumbing and lighting. A newly formed “regional strike team,” a self-contained maintenance group able to respond quickly, can do so quickly at a low cost. Small fixes, as long as they are on items the tenants value most, can have a big impact in how they experience the upkeep of a building.
Direct contact with tenants is also critical. Supplement the survey with follow-up interviews and hands-on communication. That means visiting or calling tenants who responded less favourably or indicated they wouldn’t renew.
In one Pacific Northwest building, a tenant’s response showed it was unlikely to renew. The owner immediately called to ask why. Simple: the tenant couldn’t find a high-speed Internet provider. This was outside the landlord’s role, but we leveraged internal experts to help. The tenant, who leased nearly 10,000 square feet, renewed within a week.
Would they have mentioned the problem on the way out the door? Perhaps. But by then it would have been too late. The owner’s follow-up call saved the day.
So what are tenants looking for? According to the survey, top drivers include location, quality of building and property management. Moreover, proactive work on non-emergency inquiries has an almost linear relationship with satisfaction.
By exploring what tenants want and delivering on their needs, owners engender loyalty. That results in the ultimate payoff in a competitive market – satisfied tenants who renew leases.
Bernhard Klein Wassink is chief marketing officer, GE Capital Real Estate.