by Shane Henson — January 7, 2013—Jones Lang LaSalle, a global financial and professional services firm specializing in real estate, has released a white paper that illustrates the need for property managers to make ensuring tenant satisfaction a top priority—not only to guard their reputations but their bank balances as well.
According to the white paper, The Economic Cost of Losing a Tenant, the cost of losing and subsequently acquiring a replacement tenant can cost building owners up to three times more than renewing a lease. However, by comparing costs associated with renewing leases versus acquiring a new tenant, which include lost rent, free rent, construction time, tenant improvements and leasing commissions, the white paper goes beyond stating the mere importance of tenant retention to quantify the potential price tag associated with losing tenants.
To demonstrate how to calculate the cost of losing a tenant, the white paper introduces a hypothetical scenario based on real market conditions in Chicago’s Central Business District. The scenario shows just how costly losing a tenant can be: in this case, about $1.5 million—nearly three times more than the cost of renewing a tenant, says Jones Lang LaSalle.
“This formula can be applied to markets all over the country,” said David Hopwood, a Jones Lang LaSalle general manager and senior vice president in Chicago. “Property managers just need to plug their market and building-specific metrics into the formula and make the calculations from there. They will consistently be able to show their owners how expensive losing a tenant can be, affirming the importance of tenant relations programs that encourage renewals.”
The Economic Cost of Losing a Tenant also highlights proven elements of a successful tenant retention program, generated by detailed tenant surveys, open communication from the top down at tenant organizations, and the creativity of the management and ownership teams, says Jones Lang LaSalle.
