How Can Commercial Landlords Retain Their Tenants?

SHB Real Estate
Oct 9, 2020 · 7 min read

Traditional commercial Landlords are known for being old-fashioned large estates that own huge portfolios. Some are so big that they tend to lose touch with their tenants and their respective needs. From the landlord’s perspective, why should they be so concerned by their Tenants’ requests? A lease contract has been signed and the tenant is now legally committed to paying rent for the duration of the lease or until the break clause. Portfolios are therefore valued from a spreadsheet showing rent roll and lease length. The only consideration of the tenant will be of their covenant strength judged by their historic annual accounts. Management surveyors try to steer away from tenants who are only seen as moaning about things like leaking toilets and dirty reception areas. The only time the traditional Landlords looks up to consider his actual tenant is at lease renewal time. But often, this is too late. Unbeknownst to this Landlord, the Tenant may have been considering a move away for some time or has even been looking for new offices for the past 6 months or so.

So why is this historic relationship between Landlord and Tenant broken? And what should modern commercial landlords be doing to keep their existing Tenants and more importantly, win new ones!

Firstly, we must accept that the way we work has changed. In an ever-evolving world where our reliance on technology increases all the time, the importance to adapt and keep up to date with the most recent and modern technology proves to be increasingly evident now, more than ever. Oh, and not to mention that there has been a slight global pandemic that has also caused a shift in landlord-tenant understanding and behaviour.

To expand on this latter point, we have witnessed first-hand at SHB that a vast number of businesses across the UK, both large and small, have had to make tough business decisions during this downturn, and many are seriously considering their future needs for how much and what type of office they want to occupy. Many of which are making use of the Government’s Furlough scheme and in some more unfortunate cases, some are resorting to announcing redundancies in efforts to ensure the survival of their business. Rent payments on office space remains a large outgoing for most businesses and is quite often the second largest outlay for a company, after staff’s wages. Therefore, it only makes sense that firms will look for advice on strategies on how to best manage their real estate liability, especially during this period of uncertainty with the virus and economic downturn that seems to be looming over us. We have and continue to advise many businesses in exploring the option to offload their commercial real estate liability by either assigning or sub-letting their lease to another interested party, or even surrendering their lease all together to relocate or opt to work from home for the foreseeable future. This is reflected in the office take-up figures in Central London for Q2 2020 which reached 1.2m sqft, indicating a drop by 61% compared to the figures from the previous year and also well below the long term average of 3.2m sqft.

This global pandemic has also brought into focus the emergence of working from home (WFH). Whilst the long term consequences of this are still to be determined, with some enjoying the escape from the daily commute and enjoying working from their laptop in their garden, and others longing to escape the boredom of their confined flat and return to socialising with their colleagues in the office, almost everyone agrees that there will be a more flexible approach to when and how often you have to be sitting at your desk in the office in the future. All this plays out when the company questions whether they need an office for all of their staff or whether their office capacity should be reduced to hold only half of their staff if only half of the staff will be using the space at any one time in order to adhere to the social distancing measures.

So, we must accept that we are living in a changing world. Technological innovation is accelerating and those that ignore it’s potential and influence on the way we occupy workspace do so at their peril. We must therefore ask how a commercial landlord can best utilise this technology to understand their tenants’ needs and wants in order to minimise voids and grow their portfolio.

Digital disruption is not just a buzzword, it demonstrates growth, innovation, efficiency, capital investment, modernisation, and creates entirely new value for a market. In today’s economy, consumers expect every single company to be a tech company or at least have some sort of tech presence either via an app or their website.

For commercial landlords, this doesn’t necessarily mean they need to learn how to code and become tech gurus. What it does mean is that there is a growing importance to embrace this ‘disruption’. Over recent times we have seen many landlords refurbish their space and implement turnkey interfaces that transform their property into tech-enabled experiences that their tenants love. There has been an ever-growing need to create a “tenant experience” rather than just a space for the tenant to sit at a desk from 9–5.

In addition, office owners are now able, through tech advances, to gain access and insight into tenant data they’ve never seen before. This will become hugely important in influencing and determining how and what they allocate their Capital Expenditure (CAPEX) on when designing and refurbishing their properties. Previously, landlords may only have known the name of the companies in their building and perhaps the office manager or top level exec.

In today’s world, there is an ever-growing demand for access to data and information and this has proven to be a powerful tool that is often the key to success for multiple businesses. The ability to utilise data is definitely something that modern commercial landlords should look to incorporate if they haven’t already. At SHB, we have an integrated CRM system, which is now essentially the backbone to how we manage our data that we have extracted and it is this ability to convert this data in an efficient way that has led to much of our success.

Access to demographic information alone will make a huge difference on the workplace experience that landlords can provide. How to allocate desk space and for a flexible workforce who Work From Home part of the time. The benefits of tenant data are far reaching. Landlords can utilise technology not only to help tenant retention, but also everything from investment decisions, risk factors, what to build, for whom, and when. Rather than issuing an old-fashioned survey to tenants in order to gauge satisfaction, landlords can view data upfront that informs smart, proactive strategies that will ensure tenant satisfaction. And, by understanding in real-time how tenants act and what tenants’ value, landlords can build the type of strong tenant relationships that will ultimately grow their portfolio and help prevent the risk of any voids in their properties.

Providing free Wi-Fi in landlord common areas of a building is the bare minimum nowadays. If Tenants are so used to running their busy lives from their smartphone, why not get them to use it to report on problems with the building they work in. As TAMI (Tech, Advertising, Media and Information) businesses and growing more and more, they in turn not only demand more office space, but demand and expect more from their workplace experience. As an industry that is monopolised by the millennial population, according to Deloitte, millennials will make up 75% of the workforce by 2025. And it is these tenants that expect the best amenities and desire a tech-savvy workplace to provide them the best experience. These tenants have created a new demand for office experiences, such as yoga classes, happy hours, or free coffee in the lobby. According to a survey from Fidelity, 25–35 year olds said they’d be willing to give up an average of $7,600 in salary for a better situation at the office. Connected tenants expect to be able to register visitors from their phone, and they expect to be able to book common areas or conference rooms from their phone and they expect to be able to receive notifications, alerts and messages about their office from property and asset managers on their phone.

There will no longer be any excuses for landlords that don’t implement a software interface for their property. It will come down to which commercial landlords ignore technology altogether, and will likely be the ones who find a way to embrace technology that succeed. If technological change is driven by the tech savvy occupier, it will be the Landlord who is best and fastest at accepting and using this information to adapt their built environment who will survive and grow.

To ensure you have the right team working with you. Talk to us. www.shbre.co.uk

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