Unlock the Power of Tenant Centricity
Examining the state of the DC real estate ecosystem and the benefits of a tenant-centric approach
By Daniel Mackett and Sawyer Blazek
The changing landscape of DC real estate
It’s no surprise to anyone in the Washington DMV commercial real estate business that DC is a challenging market right now. Since the beginning of COVID-19, many employers haven’t returned to the office en masse, heavily impacting metropolitan development. This includes the federal government — DC’s largest office tenant. In addition to the community impact, this can have a reverberating effect on many types of businesses, including owners, operators, developers, and even financiers, as revenue declines.
Why did this happen?
To perhaps oversimplify, no one needed to go back to the office to keep working. There was nothing fundamental about their office that required employees to be there, triggering a decline of downtown real estate purpose across food, nightlife, retail, and various other commercial uses. This left many owners trying to find new tenants for their existing real estate and developers with a lack of new projects to take on.
But what if the same tenant isn’t going to come back? How will owners and developers attract new tenants and bring back the thriving development that the area has experienced over the past decade?
One simple question may help to address this crisis and transform it into an opportunity: What is the ecosystem your next tenant needs?
Unlock the power of tenant centricity
Consider this insight from a former real estate private equity CEO:
“When an apartment community addresses more than just the core needs tenants have, like social interaction and connection, retention goes up significantly. Likelihood of a tenant renewing a lease goes up materially if you have a few friends who live [in the complex or nearby].”
This CEO understood that bottom line value (in this case, retention) is directly affected by a tenant’s experience. By diversifying the uses and creating a continued need for people to be at the property, they could increase social interaction and connection within the apartment complex, thereby improving retention.
So how do we address a tenant’s ecosystem?
Unfortunately, that type of data doesn’t exist in traditional real estate products today. That said, it does exist.
Imagine if you were able to understand and predict a current tenant’s level of property connectedness based on data from social media or community apps? What if you had real-time data that showed their preferred amenities and community events that would drive meaningful connection and loyalty amid your tenants?
These aren’t far-fetched scenarios. You really can know your current and future tenant’s needs with increasing clarity and precision. However, it takes focus, investment, and creativity.
Why is this important? Because, as owners and developers in the DC area have learned, the past isn’t always a good predictor of the future. Firms that arise stronger from difficult market conditions will likely be those that understand their tenants — both current and future — and create connected experiences that help to build a sense of community and belonging. Because if someone doesn’t need to be there, you have to make them want to be there.
So how can you harness the power of tenant needs to improve your bottom line? We asked the same question to leaders across the real estate industry and synthesized what we learned into three recommendations.
1. Give tomorrow’s tenant a seat at your strategy table
Bringing your tenant (in particular, your future tenant) to your strategy table is one way to future-proof your organization’s growth. However, this requires an investment in technology, and data is not something that accumulates overnight by itself. It starts with a commitment from your leadership that long-term value generation rests on your ability to let tenants drive strategy. Leaders must make the intentional decision to invest in the people, processes, and technology needed to gather critical tenant data that will influence and inform every strategic decision.
This is not something every organization is ready to do. You should take the time to honestly assess where your firm’s maturity is today and make the commitment to move the needle toward becoming game-changing tomorrow. One of the ways to do this is to evaluate your data to understand its value and ability to enable customer-centric decision-making.
- Lagging: Using historical, comparative data to drive decision-making
- Emerging: Beginning to leverage some real-time data; limited investment in infrastructure needed to drive transformation
- Transforming: Leveraging many real-time tenant datasets; secured necessary investment to build the right infrastructure to drive strategic decision-making
- Game-changing: Partnering across the value chain to build robust, real-time tenant datasets; have already introduced new products or decisions that are generating significant value
2. Build a data capability that leverages the power of real-time tenant data
Transforming your firm’s strategic advantage will require you to reimagine your data capability. As one VP of strategy at a commercial real estate mortgage finance firm put it:
“Most data is lagging, not leading or real-time. [We need] better data on housing ecosystems and not just buildings.”
What could it look like to have a robust, integrated view of the ecosystem of your property? Imagine having real-time tenant preferences from social listening tools, restaurant spend data from banking and payment partners, and nearby hiring activity accessed from job boards.
- For developers, you could better decide on what areas to invest in and what properties to develop there.
- For owners, you could quickly determine the right next set of renovations, know which restaurants to lease to on your first floor, and which individuals to directly market to for new housing.
- For financiers, you could be prepared to proactively offer the right financing products to enable your clients to transform their properties and investments into the thriving communities their tenants want.
So how could you get started and determine what data you need?
Start with a fresh canvas. Identify all the potential use cases of real-time tenant data you would need to develop your strategy. Keep it focused on the future actions and decisions your team will need to make, and what outcome this drives for the tenant. Consider what data you could gather if you had a direct, face-to-face conversation with a current tenant or future tenant.
After identifying your ideal future-state data needs, take a critical look at your current data and technology and assess the maturity of your ecosystem’s ability to capture, analyze, and leverage these data sources. Does it support and enable both your strategy and execution? Do your platforms and technologies enable you to gather, analyze, and act on real-time tenant data? Identifying these key gaps in your ecosystem will help lay the foundation for prioritizing your first set of transformation actions.
3. Don’t gather tenant data alone
You may be feeling a bit overwhelmed thinking about all the data you need to gather and how to build the systems needed to manage it. Here’s some good news: you can’t — and shouldn’t — do it alone.
The real estate industry has many players in its customer value chain, from ownership and financing to development and management. Every part of the chain needs the other to create value for the tenant. But existing alongside each player is different from building win-win partnerships with one another.
You’ll be able to build a more robust and valuable tenant ecosystem faster if you collaborate with other value chain partners. Your partners may have access to certain pieces of tenant data that you don’t and, likewise, you may have access to data they could benefit from. Consider one example from an executive at a mortgage finance firm:
“It’s important for us to understand our clients’ tenant as it impacts what products we can offer, which is how we differentiate ourselves. Our clients are owners and operators. We need to have an understanding of both their needs and their tenants’ needs to serve as an advisor. We share data as they try to make investment decisions to help point out operating inefficiency and interesting things in the marketplace.”
Imagine the power of a data partnership between financiers and owner/operators to help understand how tenant needs are changing and offer more predictive, personalized services. In this scenario, every party generates more value together, and the property’s tenant ecosystem transforms in time to meet its future tenant’s needs.
Move forward with confidence and clarity
Now more than ever, it will be critical for your firm to build a strategy around the tenant of the future instead of the tenant of the past. In an industry that’s changing faster than ever with increasingly compressed margins, real estate companies will need to position themselves to be on the leading edge of customer experience, data, technology, and partnerships to remain competitive.
Make the intentional decision to bring the tenant to the strategy table, work toward building a real-time tenant data capability, and focus on building partnerships to gather and share data with other organizations in the tenant value chain.
At Slalom, we’ve had the privilege of partnering with firms across the real estate industry, helping them transform their business and technology to create greater value for their customers. Wherever you are in your journey toward tenant centricity, we’re here to help.
Slalom is a global consulting firm that helps people and organizations dream bigger, move faster, and build better tomorrows for all. Learn more and reach out today.
