While it is true that success in real estate is a result of ‘location, location, location’ ‘rent, rent, rent’ is equally as important. The ability to maintain rentable building space for financially sound tenants is the key to maintaining cash flow and helping owners achieve ownership goals.
Retaining tenants is of paramount importance. Building owners expect their in-house management team to provide and maintain the programs and services that will keep tenants happy and encourage them to remain in the building. The costs to replace a tenant can be significant and includes several variables, including:
- down time realized in vacancy loss
- brokerage commissions
- tenant build-out allowances for the incoming tenants
- relocation costs
- concessions (such as free rent) to be paid
Building management services can play a significant role in influencing a tenant’s decision to remain in their existing space or relocate. If location and value among competing buildings are essentially equal, the next determining factor for a tenant to remain or move will likely be the quality of management services.
A tenant retention plan is an effort by building management to prevent existing tenants from moving out of the building. The methods and strategies employed to accomplish this define the tenant retention plan. At a minimum, the plan should identify the tenants, the services and amenities to be provided, and indicate a method to measure success. The design and creation of the plan must be a joint effort among all of the various disciplines involved in the process. Input should be solicited from the owner, asset manager, leasing broker, marketing, and building management team. The plan should be a formal written document with defined objectives and measurable goals that are specific for each tenant.
The stated goal of the tenant retention plan should be 100 percent retention. In some instances, however, tenants will not renew their lease, regardless of the quality of the property management. The tenant may need additional space that the existing building simply cannot accommodate. It is possible that the tenant is going out of business or is relocating to another city.
The physical condition of the property, its location, relative position in the marketplace, a SWOT (Strength, Weakness, Opportunities and Threats) analysis, and rent structure should be included as part of the tenant retention plan. To remain competitive, this information should be updated at least annually. (If the property is located in a rapidly changing market, the data should be updated more frequently.)
An important part of the tenant retention plan is a profile of each tenant. You can list basic information, such as a brief statement of the tenant’s business, contact information, the lease termination date, a history of tenancy, and the likelihood of renewal. The information to be included in the tenant profile can be summarized from a lease abstract form.
The tenant profile should also include a history of maintenance and service activities, especially those actions that might have been extended as a courtesy beyond the scope of the lease. Some tenants may forget or come to accept such courtesies as commonplace. A polite reminder of the extra level of service being provided may help solidify the tenant’s renewal decision.
Regularly scheduled meetings with tenants should also be tracked in the tenant profiles. These meetings provide an opportunity for tenants to discuss their satisfaction with or concerns about building services. The feedback from these meetings provides the information necessary to make changes that will help to retain the tenant.
The quality and efficiency of contractors, service providers, and vendors are a critical part of how a building is maintained and serviced. The tenant retention plan should include a review of your existing contractors and a history of any unique or difficult situations you or your tenants may have experienced with them.
Tenant Satisfaction Survey
A tenant satisfaction survey is an important part of the tenant retention plan. It helps to determine which aspects of property management are satisfactory to tenants and which areas need improvement. Document improvements that are made as a direct response to data obtained from the survey. Tenant satisfaction surveys should be conducted on a regular basis, preferably annually, but no longer than every two years. Be sure to establish a timeframe to inform tenants of the results of the survey and any planned follow-up activities.
While a formal survey conducted each year will provide important information on the quality of the property and services, do not underestimate the value of more frequent, informal discussions with tenants. A comment made during an informal conversation may reveal a growing concern on the part of a tenant. Addressing small issues before they become larger problems will go a long way toward maintaining tenant satisfaction.
A tenant retention training program for each member of the management team should also be a part of the tenant retention plan. The individual components of the training program will vary based on each team member’s responsibilities, but the common and overarching theme will be to ensure that tenants always feel welcome and appreciated. Customer service, communication, and overall hospitality are three of the most important areas in which staff should be trained.
The mission statement and service philosophy of building management should guide the actions of all employees. Many companies print their mission statement and service philosophy on the back of their business card or on plastic wallet-size cards that employees can carry with them as a reminder of their dedication to the tenant.
Tenant communication can be achieved in many different ways—through e-mails, office visits, newsletters, and the like. Regardless of the method of communication, a regular schedule for communicating with tenants is another important component of the tenant retention plan.
Services and Amenities
Beyond the basic services required under the lease, additional amenities and services can help to differentiate building management from competitors. The tenant retention plan should individually list the services and amenities to be provided and should include a plan for developing, maintaining, and adding services and amenities as necessary.
While no management team wants to lose a tenant, it is an inevitable part of doing business. Exit interviews provide the opportunity to understand why a tenant is leaving the building. Even if the tenant is leaving because of factors beyond your control, you will likely obtain information that can help you make changes and improvements that should help retain the remaining tenant base. At a minimum you should document the following two items:
- Official stated reason for moving: Include details such as information about new location, size, rent, lease terms, purchased property, and so forth.
- Comments and suggestions: How could the management team have served the tenant better? What did we do right? Be as detailed as possible.
Always end the tenant relationship on a professional note. Obtain forwarding information and contact information for the tenant in their new location. Remember, the tenant’s decision to move is not always within your control. Concluding the tenant relationship on a positive note may still result in leasing opportunities. The tenant may be used as a reference for potential tenants. Additionally, they may know of other companies looking for space and will refer your property as a positive one to consider.
Tenants who feel valued and are comfortable that their needs are being anticipated and fulfilled are more likely to renew their leases. The property/facility management team that can deliver superior service and stay close to the customer through excellent service and communication will differentiate itself from the competition and keep their tenants, and their owners, happy.
This article is based on BOMI’s new and updated coursebook, Fundamentals of Real Property Administration. For more information, call 1-800-235-BOMI (2664) or visit BOMI’s website at www.bomi.org.