Building the Tenant Experience
By: Michael Broder, CEO, Brightline Strategies, and principal, Rockerbox, a joint venture with McWilliams|Ballard
Winter 2016 2017
Political strategists have refined the use of predictive analytics; commercial real estate executives should follow their lead.
IN TODAY'S commercial real estate landscape, most markets are highly saturated, with every property owner attempting to “out-amenitize,” “out-incentivize” and “out-build” the building next door. These market trends — coupled with the ongoing battle to recruit and retain tenants — often leads to “price-driven” negotiations and deployment of “me-too” amenities, making it nearly impossible to distinguish one building from another.
It is certainly not news that commercial real estate is highly commoditized. It may be news, however, that it doesn’t need to be — especially for those armed with the right insights. Imagine the impact on tenant recruitment and retention, if you knew precisely what product to build, for whom, where, at what cost, when and why. How might that affect investment decisions, risk profiles, lease-up timetables, rent premiums and attrition rates?
While real estate executives are increasingly relying on comparative benchmarking and market trend analyses (“big data”), some are searching for more predictive, actionable analytics (“small data”) that precisely inform tenant, product and organizational strategies.
Decision drivers are top-of-mind factors influencing space selection prioritized by importance (far left) and categorized by product, service and cost considerations (top right). Decision-maker expectations (bottom right) reflect what tenants want, the experiential attributes they deem most important based on the chosen space. As the diagrams on the right indicate, the factors that influence space selection and what tenants want from their selected space are not aligned in terms of category prioritization and importance.
In other words, they are seeking to find the underlying triggers that can predict how to:
1) Amplify market differentiation and relevance based on what tenants value and the language they use to describe the outcomes they seek.
2) Increase building preference, absorption rates, tenant loyalty, rent premiums and third-party advocacy.
3) Drive achievable — but not necessarily inevitable — portfolio outcomes.
“Big data” is information analyzed computationally to reveal patterns and trends. It assumes that what has been, will be. “Small data” is information from specific populations that yields predictive behavioral insights. But data is only useful if it is actionable. So, how does one make it actionable?
American political strategists have been refining the art and science of collecting and interpreting data to find genuine game changers for two centuries. They have perfected the use of predictive analytics and mastered the skill of weaving an imaginative whole from a wide variety of data points to better connect their candidates with key constituencies. Commercial real estate executives should follow their lead.
While the industry continues to rely on satisfaction studies to form opinions about what tenants want, the critical questions remain: What was learned from the data, what changed because of it and were the eventual outcomes as expected and/or projected?
While many believe that amenities rank high on the list of factors that drive tenant decisions, the data demonstrate otherwise. Actual decision-making behavior places amenities second to last (at a mere 5 percent) on a list of eight primary decision-driver categories.
What most tenants say is quite different from what they expect, what they believe and what they do and/or desire. Take, for example, the top decision-driver response: “cost factors, affordable rent.” Tenants almost always say they are leaving for a better price. Compare that to the prioritization of expectations by decision-driver category. The truth is they are actually seeking greener pastures.
As tenant wants, needs and expectations evolve, landlords need to focus less on lagging indicators of satisfaction and more on leading indicators of growth; in other words, recruitment triggers and retention drivers. Predictive data as to what really drives building choice, tenant loyalty, rent premiums and third-party advocacy enables landlords to make more informed decisions that will directly correlate with faster lease-up, lower attrition and higher net effective rent.
Know Your Tenants
The methodology described here was born from the world of political campaigns and arises from a basic premise: If you want to know what people are thinking, ask them.
The process starts with distilling the essence of what is important to tenants. This means getting past the many cognitive biases that can distort tenant responses and, instead, finding the core insights that compel them to connect with you. That’s why satisfaction studies are largely ineffectual in accurately forecasting portfolio performance. In other words, high satisfaction does not necessarily correlate to higher retention.
The above chart tracks commercial tenant responses to prompts on likelihood to renew “pre-messaging” (before exposure to information about a building, service experience, etc.) and “post-messaging” (after exposure). “Ballot switchers” are those who shift from a lower to a higher renewal intention (top chart) as well as those whose intensity of their renewal decision increases.
Don’t just ask tenants “how they feel” about what they are getting for the rent they pay. Ask “blue ocean” questions, unconstrained and without parameters; questions like “What would a world-class tenant experience look like?” and “If you could choose the ideal characteristics of your next landlord, what would they be and why?”
Responses to these questions will help you understand how to “move” tenants with respect to renewal and/or relocation based on their definitions of excellence.
While all tenants have some of the same wants and needs, they are not homogeneous with respect to what they value. Research programs should therefore be designed to not only uncover the differences between customer segments but also to identify the “best fit” tenant typologies for a building and how to influence their “buying” behavior (tenant switch variables).
This level of clarity enables a landlord to:
1) Appropriately allocate resources toward areas of growth and vulnerability.
2) Prioritize leasing and marketing activity by location, property type and tenant segment.
3) Focus property management on specific actions and/or experiential elements as well as the messages to communicate them.
Move Beyond the Bricks
Diving deep into your tenants’ businesses, helping them to grow and facilitating experiences that fill gaps within their organizations creates greater loyalty. Some notable actions commercial real estate companies can take to improve tenant experiences include the following:
1) Facilitating connections such as networking opportunities.
2) Finding ways to empower tenants to do business better and, by extension, do better business.
3) Providing a workplace environment that promotes well-being.
The Bottom Line
In the end, it’s simple: For a portfolio to grow, tenants need to be treated well. Your employees must not only project the right attitude; they also must be fully prepared to deliver the desired experience. Building tenant relationships that drive greater portfolio growth is more than an act of will, intention or effort. It is a matter of determining what tenants truly value, delivering those services and experiences in consistent, meaningful ways and communicating effectively to ensure that the relevant audiences are aware of them. It’s easy for tenants to leave a building. It’s harder for them to leave an experience.
The data are clear: It is the experience that counts.