tenant first

A Tenant-Centric Mindset is Reshaping the Commercial Real Estate Industry

There is a growing trend in the commercial real estate industry to develop a more customer-centric (or tenant-centric) strategy to help improve returns. This shift in strategy is now starting to reshape the entire property landscape which in turn determines which technologies get adopted and which don’t.

The influx of millennials into the workforce is driving change in every aspect of how firms do business. These workers have an increased reliance on technology and significantly different expectations for work/life integration than older generations. This influences their expectations for a workplace. Consequently, workplace design impacts corporate performance.

These prospective workers want an appealing office setting. But they also want amenities that simplify their lives and make their work more comfortable and enjoyable. So, in order to recruit top talent, companies are looking to make the workplace as appealing as possible.

Property owners know that a tenant’s effectiveness in recruiting and retaining top talent directly affects lease performance. So they’re working more closely with tenants to provide technology and amenities that make locations attractive for new recruits and support their tenants’ business operations.

To support this more customer-centric approach, new specialized ventures pop up every few months. These companies serve a wide range of functions including building and space design, improved leasing and tenant communications, more flexible leasing options, creating community to reduce turnover, and even giving real-time insight into and tenant control over their use of amenities.

These PropTech technologies enable real estate investment firms, property managers and owners to better support commercial tenants. Here are just a few of the current trends in the commercial office space markets.

Building design

In order to attract and retain talent in a tight job market, commercial tenants need make themselves as attractive as possible to employees. Building owners are responding with creative new designs. “It’s not so much about making work fun, it’s about making life more livable,” said Amy Millard of VTS.

Property managers can support this by making the workspace inviting and providing access to amenities like coffee shops, common areas, building wi-fi and supporting infrastructure.

In June 2018, Equity Office, owned by Blackstone’s real estate funds, launched a new identity focused on tenant success – EQ Office. They focus on addressing evolving workplace needs to help companies attract, retain and inspire talent. According to EQ’s website, “While other real estate owners talk about square footage and floor plans, we focus on the experience—how space feels, activates, and performs…to bring humanity back to the workplace.”

At their Howard Hughes Center in Los Angeles, EQ is partnering with Industrious to provide collaborative workspaces. They’re adding lifestyle amenities including health-centric initiatives and programmed fitness options, a farmers market, dog-friendly elements, and a conference and entertainment center. Industrious’ office space will be a key component of the overhaul because it adds flexibility and collaboration.

Site selection

If a company is doing site selection for a new office location, they can leverage data from Megalytics. They can figure out where the talent they need lives, the commute patterns, local amenities, education levels in the submarket and surrounding areas, the abundance of similar companies in the area, and the job growth. This gives companies a more comprehensive understanding of the differences between sites that will have a long-term impact on their growth.

Pre-leasing and marketing

Some builders and property managers are using Inreal Technologies to help prospective tenants visualize a space before it’s built out. This supports both the pre-leasing and marketing phases. Developers and property managers can use its 3D modeling to let a prospective tenant virtually walk through a version of the prospective building and space, experiencing it as if they were there in person. Users can change room variants, offering different floor plans, décor and amenities to gauge interest when meeting with potential tenants.

Commercial real estate specific CRMs

Customer relationship management (CRM) platforms have been heavily adopted in most other industries for decades. But real estate operators and owners have been slow to adopt this type of technology, largely because the horizontal CRM platforms don’t support the business needs of the CRE space.

Amy Millard, CMO for VTS explained, “Commercial real estate has been slow to adopt CRM, not because of a lack of understanding, but because their needs are difficult to support. They have very complex permissioning needs, and traditional tools don’t cater to them.” For example, a building can be owned by multiple companies, and subsets of these companies co-own other buildings. So let’s say Company A co-owns 50 buildings with 100 tenants in each building. They partner with Company B in Building 1. So Company B has rights to see the lease data related to Building 1, but not data related to the 49 other buildings.

So the permissioning is complex in terms of how they’re partnered and who needs what data. In addition, the nature of the leases themselves is very complex with many variations between tenants in a single building. A CRM needs to support these extra layers of complexity.

There are now quite a few CRM platforms designed specifically for the real estate industry. Each serves a distinct niche in the market – from brokers to property managers to leasing to investment managers, so it’s important to evaluate them based on your firm’s specific needs. Firms like VTS, REThinkCRE, Apto, IMS, AppFolio, and Juniper Square all provide elements of CRM in their platforms.

Leveraging existing relationships

VTS allows property owners to manage all leases, deals, and tenant information centrally and leverage existing relationships to support the leasing process. So if a firm like Amazon is looking for a building in a particular submarket, the owner can quickly figure out if they or a partner already has a relationship with this company. Then the broker can call their partner and leverage the relationship, existing terms and other advantages to expedite the leasing process in the next building and make it simpler for the tenant.

Flexible leases

Business cycles are short, and companies can rarely predict how big they will be in 2 to 3 years, let alone in 10. This makes it difficult to commit to a 10-year lease. Co-working spaces have been capitalizing on this, offering short lease terms and flexible space. But co-working operators disintermediate building owners, capturing a substantial margin just by offering more flexibility.  Now property owners are looking to meet this demand more directly by offering shorter term leases and more flexible office space.

Convene is helping Class A building owners to offer this same type of flexible leasing directly rather than being disintermediated by a co-working company.

Improved property management

Property managers are also finding ways to make the tenant’s life easier. If a tenant needs to have a few employees work over the weekend, they normally have to submit a change request 24 hours in advance to ask the property manager to adjust the HVAC. But some buildings are now providing an app like Genea.  This gives the tenant the ability to request overtime HVAC and approve the additional charges on a mobile app. The application then fulfills the request through the building’s existing systems, eliminating the need for an engineer to manually program and monitor every request. Tenants view and must approve extra charges upon submission of the request, so there’s no haggling over the bill later. Then, taking into account any complexities and exceptions in the lease, the software generates monthly sub-metering invoices to support tenant billing.

Property firms must adapt

These are just 7 specific scenarios of how firms can become more customer centric. But rapid developments in technology and in tenant expectations signal more disruption (and more opportunity) ahead.

In January 2018, Deloitte published its 2018 projections for the CRE market. The article points out that, “The real estate industry is on an accelerating disruption curve that will challenge industry leaders to look differently at the ways they do business and interact with their tenants and end-user customers….The industry sits at the intersection of some of the biggest shifts taking place in business, as smart cities, mobility, fintech, robotics, and cognitive automation advance at an accelerating pace.”

This disruption opens new doors for innovative business models. But it’s also a threat to commercial property owners that are not prepared to adapt, embrace innovation and focus on improving the customer experience at every touch point.

In the next few weeks, I’ll be publishing more articles on how commercial real estate firms are also becoming more investor-centric and adopting data-driven strategies to evolve and innovate.

More Stories
NER
Why Broker Net Effective Rents are Meaningless