As the economy plummets, the shift of power from landlord to the tenant is almost audible. Like Ross Perot’s “great sucking sound,” the leverage shift from landlord to tenant landed with a tremendous thud in 2008 and will continue to roll downhill throughout 2009. As companies go out of business, reduce staff and look to reduce costs wherever possible, attractive sublease availability has become more prevalent and is beginning to compete with the general market ? forcing rentable rates down and threatening building-based cash flows. What to do about it? If you are just considering this now, you are late, but not lost. While tenant retention planning is a long-term concept, what matters may be idiosyncratic to each tenant. Whether you have a tenant retention program already in place or you are just getting started, you need to know how happy your tenants are with the product you provide.
Tenant Retention = Revenue and Asset Value Retention
Tenant Retention Planning devolves on the maxim of an ounce of prevention is worth a pound of cure. If you continually invest in providing an excellent environment and excellent services to your tenants, and have the service-level data to prove that yours are the best available services on the block then you already have the rudiments of an effective tenant retention program. Like your own health, tenant health and happiness need to be constantly monitored so that you can catch problems early and address them quickly and effectively. Knowledge about all the activities in your buildings and the general satisfaction of your tenants with your services means everything to your tenant retention program. Note that tenants make their decision stay based upon three main factors:
- Is this location the best location for my company?
- Am I paying an attractive price per square foot?
- Is the Landlord providing me with great benefits and services?
There is not much a building owner can do about the first two factors ? he cannot move his building to a better location and the market typically drives the price per square foot. However, the third factor ? provision of better, more attractive tenant benefits and services ?is directly within the owner’s control. Those service components may include a responsive service request management program; better information availability; better communication; a consistently attractive environment; reliable core services such as working air conditioning and heating; excellent cleaning and clean and attractive bathrooms. It is critical to deliver these services through modern means and measure their effectiveness through the tool that YOUR TENANTS USE EVERY DAY ? the Internet. Reach out to your tenants by leveraging the Internet to provide better, more responsive service and information management and utilize survey and communications tools to guarantee that they have what they need when they need it. Ensure that you know your tenants are happy.
To put a fine point on it, let’s look quickly at the comparative cost of a tenant retention program against the cost of a tenant search. Take for example a commercial building owner with leased space of 10,000 square feet at an annual price per square foot of $45 per year. If the tenant leaves at the end of the prescribed term and the owner has neither retained that tenant nor found a replacement tenant, the lost rental income from that space amounts to $37,500 per month. Add to this the $135,000 on average that the owner will need to pay a broker to fill that space (6% commission) and a tenant improvement allowance of 3 months or $112,500 of lost rental income. Don’t forget the ancillary advertising fees and Common Area Maintenance fees that will either be lost or charged to the remaining tenants in the building. In this scenario, the daily cost of that vacancy to the owner approaches $2,000 per day, when averaged over the entire year. Any way you look at it, losing a tenant is expensive.
Alternatively, a tenant services program (tenant retention program) supported by a modern Web-based Operations Management System (WBOM, CMMS) costs a building owner a very small percentage of that comparative loss. Owners already have the staff in place to provide excellent service. With a WBOM, they can ensure that that staff is doing what it should be doing on time and with measurable results. Modern communications tools allow owners to better monitor tenant needs, fulfill work order & service requests, and put a more effective and professional face on their buildings. Furthermore, tenants value the visibility and control provided by these modern tools all of which reflect well on the services the owner provides. The cost to provide these services to the tenant and to support them with modern operations management tools is pennies per square foot per year – a full order of magnitude less than what it would cost to replace that tenant.
So the days of sending out a newsletter, shaking hands every so often, and giving holiday parties are long past. Today’s tenants demand services – proven services. Make sure that you provide those services and monitor their efficacy. Reach out every day through modern communications and information management tools and you’ll be preserving your cash flow and your asset value for the long term.
