The Blind Spot in CRE: Seeing It Will Retain Tenants
- Oct 02, 2020
In the game Monopoly, property values don’t change. This reflects a 19th century mindset around real estate. Owners and operators focused on physical assets through the 20th century, until hospitality became an increasingly expensive differentiator in the last 20 years. Still, tenants rarely were “highly satisfied.” Now what?
It’s easy to believe, “It’s impossible to make tenants happy.” But it’s not true.
Here’s what’s at the root of the problem: Asset teams still assume they know what’s best for their buildings. And when they don’t know, they turn to brokers for answers.
There’s a better way. Especially in this environment.
As the cloud of COVID-19 lurks, the challenges facing building owners and operators are significant. Vacant corridors provide ample space to see what’s still missing, even when safety protocols are in place.
The next challenge is clear: getting people back to the office. But a blind spot in the industry is capping its potential: When decisions are made in the boardroom today, the people who use the building are never represented.
Even before the pandemic, this practice shocked me. It leaves money on the table, and it’s unscientific—surprising for an industry so focused on analytical rigor. This practice will make it more challenging for the real estate industry to rebound.
Instead of looking to brokers, turn first to the people who use your buildings. Building users are a valuable asset that can help to differentiate your assets, reduce costs, increase satisfaction, reduce churn and increase asset value. Until now, the multitude of people using buildings were never seen this way. That needs to change.
Consider the proliferation of gyms in most Class A office buildings. Significant capital was invested to satisfy this market trend. A portion of the investment was expected to be offset by ongoing income from membership dues. But usually, this revenue never materialized. Why? The hypothesis was never validated.
Usage—and the revenue it was expected to produce—fell far short. Teams either scrambled to restructure membership offerings to salvage revenue, or wrote it off as an expense needed to remain competitive. This is just one example of what can happen when decisions are made based on broad market demands without user input.
Leveraging consumer insights isn’t a radical idea—it’s common practice in many industries. Customers are regularly instrumental in service product innovations for Lego, DHL, Sephora and many more. It can work in commercial real estate, as well.
Developers who build amenities without input from the people that will use them operate at higher risk of delivering an unsatisfying experience. These experiences don’t foster loyalty, won’t bring people back into the office or help renew leases, no matter what the cost.
Here’s why: “Good service” is subjective. If you’re expecting fine dining and get a hot meal in 90 seconds delivered in a brown bag, it may be a frictionless experience, but it’s not a happy meal. The same is true with how building users experience the services in most buildings—there’s a disconnect.
This process allows asset teams to shorten the time need to make decisions, invest with greater confidence, and gain a competitive advantage that will attract and retain tenants.
Start with a focal point
This is still your building. Tenants expect your vision and leadership to still guide the building.
Invite stakeholders to discuss the building
Brokers will help you attract new tenants. The tenant’s employees can help you retain the tenants you have. Whatever the outcome, they will thank you for the invitation.
Dialogue with building users
Asking for feedback can invite criticism. To move past complaints, focus on what’s important to them. Curiosity can open doors to the types of investments that will inspire the workforce to return to the office.
Identify central themes
Operations, marketing and leasing teams all hear the same conversation differently. This process requires a 100,000-foot view. Hear the users first and consider solutions later.
Adjust plans accordingly
Brokers play a role once amenities are shaped by building users. Their relationships can assess broader market interest. Feedback from either the tenant community or brokers may stop, start or pivot your plans. At the end of the day, it’s better to know now than to invest in something unlikely to be widely used.
People appreciate being heard. Sharing some findings keeps them in the loop, reinforces goodwill, and gives them a taste of what to look forward to, while still retaining creative and financial license.
This isn’t about abdicating control. It is about making more well-informed decisions. It requires a shift in mindset to understand how curiosity opens pathways to profitability. But it does work.
Conversations with the tenant workforce can’t wait until they return to the office regularly—they need to start now. Asking the right questions is crucial. If you’re uncomfortable, reach out to a consultant with experience who can help.
The result will be a differentiated asset tenants feel connected to and value. While other buildings compete with cookie-cutter offerings, your building will stand apart. Little by little, the hallways that feel so empty right now will buzz once more.
As we already know—in Monopoly, returns are limited. Don’t monopolize. Listen for inroads to generate value. The potential for returns are far greater.
Joy Stephan founded 20Chairs in 2011 to help clients in commercial and corporate real estate understand, engage and retain building users. As a trusted adviser to CEOs and other leaders, she provides insights, strategies and programs to build long-lasting relationships with and between clients, members, employees and other brand supporters.