Understanding the value of tenant experience
As occupiers everywhere continue to strategize and plan out their return to the office, a number of industry-underlying questions have become apparent. Just how much space do most tenants really need? What does the best office look like? And most obviously, will remote work function forever?
The answers to those questions are based largely on the specifics of the tenant in question. A law firm will take a different amount of space and require a different level of in-person face time than a tech startup, for instance. And although we take a good stab at the question of the best office in our recent article, there is still no real one-size-fits-all solution there.
The tenant experience question
There's another question which landlords are now grappling with which does have a clear answer, however. That question is deceptively simple: We all know that tenant experience has become more and more of a priority over the past years, but why is tenant experience important at all?
It's a fair question to ask these days. Most of us have now spent so much time working from home that the idea of making an experience out of occupying a space seems thoroughly alien. We've been doing fine (or have we?) working from our home offices, dining room tables, and beds – what more do we need?
"If your spaces are going to be expected to compete with remote work for occupiers, and if you want to remain resilient to competitive threats from other landlords, offering occupiers something they cannot get at home must be a critical priority."
Why tenant experience needs to matter for landlords
For landlords, the answer is simple: if your spaces are going to be expected to compete with remote work for occupiers, and if you want to remain resilient to competitive threats from other landlords, offering occupiers something they cannot get at home must be a critical priority.
Occupiers will choose to remain in leased offices for a variety of reasons. Perhaps their employees just happen to really like working in person, or they need to as their home does not provide a silent space to concentrate. Or their industry requires close physical proximity for work to get done. Maybe upper management is adamant that a physical footprint is maintained for one reason or another, perhaps because it seems to be beneficial at least part of the week.
For the majority of occupiers, it's safe to expect that a number of these factors might be at play, but that other competing interests may not want to see an office at all. Financial planners may have come to view the office as an unnecessary expense, some employees may be vocal about wishing to stay at home, and other stakeholders may have completely different concerns.
It is in this more realistic mixed bag situation that the need for a tenant experience effort becomes obvious. In order to convince all of these stakeholders that an office is worth holding onto, landlords must provide a range of services, opportunities, community, and indeed an experience that is above and beyond what can be achieved at home, that demonstrates good value, and that allows for higher occupier productivity than the home office.
That's the landlord's perspective. Tenant attraction and retention has never been exactly easy, but with the entire business world made aware of the fact that work from home is a real possibility, it just got that much important to offer the modern tenant a top-notch experience accessible via an easy to use digital layer.
How to value tenant experience
Tenant experience in the commercial real estate setting might be seen as being tough to value for asset managers and landlords, but the reality is that there are three main spheres where clear value can be measured. As with many parts of the business, though, determining specific requires careful attention to occupier sentiment. Landlords and asset managers should be sure to periodically survey their tenants to ensure that offerings are in line with what they want.
The first component of value is tenant experience's role in bringing in new occupiers. As we will discuss in the next section, tenant experience is a crucial decision point for many businesses when looking for a new space, and so the provision of excellent experiences alongside a tenant experience platform can be a great way to get more potential tenants in the door.
The second component is tenant retention. Commercial real estate tenant retention is almost as important as leasing in the first place, since a tenant that decides to stick around saves the leasing team from having to find a new prospect, and mitigates lost rent. According to research Spaceflow performed with Colliers US, the cost of losing a tenant is very high: $1.25 million per 10,000 square feet, based on lost income as well as refurbishment costs. Providing a well-planned tenant experience effort rich with features and amenities can be critical in helping tenants stick around, since 81 percent of occupiers believe amenities are critical for good tenant experience, according to CBRE research. Check out our article all about the subject.
Finally, the last component of tenant experience valuation is word of mouth. An office that is truly enjoyed by its occupiers is one that will encourage buzz and positive social media mentions. So when a tenant's partners or allied firms are themselves looking for a new space, chances are greater they will land in a well-liked, experience-rich office than one that ignores experience altogether. Each of these three spheres is straightforward to measure by simply asking occupiers why they chose to stay or remain in your space.
Why tenant experience needs to matter to occupiers
For occupiers, tenant experience is important for a similarly pragmatic reason: to avoid employee turnover. While occupiers have learned that workplaces are now often optional, employees learned a similar lesson: many companies, regardless of industry, are now offering more and more workplace flexibility. In order to keep these aware, plugged-in employees engaged and satisfied, more effort needs to be taken to offer them a top-notch experience, whether out of the workplace or within it. That means that landlords need to deliver a tenant experience where wellness, ease of use, and frictionless work are all priorities.
High-quality tenant experience touches have evolved from being a nice thing to a necessity due to the evolving state of the workplace and the growth of work from home solutions. It's ironic that it took a big push toward remote work arrangements for offices to become the best they can be, but for the landlords and occupiers looking to ensure business resilience and limit turnover, the message is clear: don't sleep on tenant experience.