In a time of economic uncertainty, owners cannot control vacancy or rental rates. However, by employing the best team of tenant service professionals — including leasing agents, property managers and construction services professionals — owners can do a lot to control the performance of their own property relative to the market.
The office market has turned in favor of tenants over the past year, but most building owners are financially prepared for rents to flatten out or even decline for a year or two. Only about 15% of leases expire in an average year, so a two-year slowdown in rent growth is not a major threat. The danger comes when dissatisfied tenants seek a new home and no new tenants can be found to take their place.
When market vacancies rise, the pain is not spread evenly. Some buildings retain most of their tenants and quickly backfill spaces that become vacant, while other buildings sit vacant for many months. Price is usually not the main reason, since most owners will bow to market realities rather than allow space to sit vacant. Increasingly, the factors that drive tenants' decisions to stay or go will depend on the quality of the building's leasing, property management and construction management teams.
Keeping tenants happy
Providing tenants with high-quality service should be the goal at the beginning of the relationship. Tenant retention is not something that can be addressed solely at the end of the lease term, but must be the goal of every service professional every day. Although there are many ways to improve tenant service in a short time frame, the best approach is to treat tenant satisfaction as the only thing that matters — because from a property service perspective, it is.
Ways in which a strong leasing and management team can foster tenant satisfaction and retention include:
Tenant relations — Tenants evaluate the property services team not only throughout the lease term, but also during the negotiation and move-in phases. Leasing agents must be able to address each tenant's specific needs and respond quickly with cost-effective solutions. Construction managers must ensure swift delivery of space that meets the tenant's specifications. And property managers must professionally handle every service issue, from the cleanliness of bathrooms to the speed of responses to service calls. Together, the property services team is the standard by which the building is measured.
Curb appeal — The leasing agent is responsible for pointing out the best features of a space that comes up for lease, but many tenants will not bother to tour the space if the landscaping is poor or the lobby is dingy. A good property and construction management team not only makes sure the building looks great but also advises the owner on capital expenditures to keep it that way.
Cost controls — Taxes and operating costs can vary widely from one building to the next, depending in part on a property manager's ability to appeal excessive property taxes and to pursue energy-efficient operating strategies. Equally important is the role of the leasing agent, who works with tenant representatives to make tenants aware of the true cost of occupancy, rather than just focusing on the rental rate.
Capital improvements — A building that is functionally obsolete does not have a chance of leasing in a slow market. A good property-services team includes a leasing manager who knows what it takes to keep the building competitive, a top-flight construction manager who accurately assesses the cost and time frame of various options, and a property manager who pulls together the expertise and convinces the owner to make improvements that will keep the building full.
Needed now more than ever
When rent growth and occupancy levels were strong, it was hard to tell which property-service teams were truly servicing tenants' needs. Now that money is tight, some owners will respond by hiring the least expensive leasing and property management firms they can find. Eventually, these owners will realize that they were penny wise and pound foolish, jeopardizing the cash flow of their assets to save a few dollars on service fees.
Some property-service firms will be afflicted by the same brand of myopia. We have already seen many of our service competitors trying to maintain bottom-line growth rates by cutting quality-control programs, failing to upgrade internal systems and letting go of key personnel. When a company's ability to serve owners and tenants is diminished, everybody loses. In 2002, owners will increasingly turn to quality real estate service firms to meet the challenges of a difficult office market.
Jim Dismukes is senior vice president and national director of operations for Houston-based PM Realty Group, a full-service commercial real estate firm.