We know the bad news – that there is decreasing demand for commercial office space, caused by an economic recession stemming from significant job losses, a historic decline in consumer spending, a global slowdown in import and export activity, and the collapse of the residential housing market. The good news is that there is a general lack of oversupply of commercial office space in most markets. New construction in nearly every sector has been below what are long-term trends which bodes well for the longer term market. But how do you bridge the gap between today’s temporary glut of commercial office space and that longer term without organizational collapse? If you are to see your portfolio through to better times when demand actually approaches the level of supply, you are going to have to get creative.
Prevent your building from being added to The Museum of Broken Relationships. Developing good tenant relations will lead to a high tenant retention rate.
Tenant retention activities should be your priority in the fourth quarter of 2009. Corporate tenants are looking around for better space and better deals to meet their changing needs and your goals must be to satisfy them – immediately. There are three secrets to a happy commercial office tenant and they aren’t location, location, location. An excellent location is only the first tenet of tenant retention. At or below market rental rates is the second and comprehensive and valuable tenant benefits is the last. Unless you call you home Krypton, you aren’t going to fly up and move your building to a better location. Short of becoming Chairmen of the Fed, there isn’t really much that you can do about rental rates, which are wholly driven by the market. Yet you can do a lot when it comes to tenant benefits.
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.
Tenants want control and visibility over the services they order from your organization. Give your tenant control over the services you provide through a powerful web-based operations management system that provides online work order management (service requests) that the tenant can track and reconcile in real time. Prove to them that the services you provide are the best available. Give them the ability to schedule building resources easily and seamlessly. Give them a powerful, modern and professional tenant handbook that is easy to access and provides them with up-to-date information on building policies and procedures. Put a web-based operations management system in place that will help you to reduce common area maintenance charges and pass those savings onto your tenants. See more at www.buildingengines.com