Forward-thinking companies have always known that the investment they make in service quality pays for itself many-fold in the form of customer retention and brand equity. But how do you calculate the return on your investment in tenant service? I came across an article recently that quantifies the value of retaining a tenant versus replacing that tenant with a new one. I was surprised to learn that, based on the research outlined in the article, losing a single 10,000-square-foot tenant can cost a property manager close to a million bucks!
The article, by real estate giant Jones Lang LaSalle, tallies the costs associated with replacing a 10,000-square-foot tenant that decides not to renew its lease. Additional costs include lost rent, construction costs, free rent, tenant inducements and, of course, leasing commissions. While there are still costs associated with a renewal (estimated by JLL to be around $570,000 for that 10K SF tenant), the estimated costs of finding a new tenant are over $1.5 million, so the difference is a whopping $986,000. (To see a breakdown, click here.)
Research by Kingsley Associates has shown that satisfied tenants are three times more likely to renew their leases than dissatisfied ones. So the math is simple: Keep your tenants happy and save nearly a million dollars for each 10,000-square-foot tenant you hang on to. Wondering what services tenants are most satisfied with? According to the 2013 BOMA Global office tenant survey, the highest-rated building amenities are concierge services (4.39 on a 5-point scale), health/hygiene programs (4.27), secure document removal (4.26) and car washes (4.13). As mentioned in “What Tenants Want,” BOMA’s summary of the survey results, “[i]f executed well, the addition of some of these amenities could offer an opportunity for property owners and managers to have ‘quick wins’ with their tenants.” I couldn’t agree more!