One of the biggest challenges for property managers is quantifying the financial impact of a tenant service strategy. Many property managers think that a tenant service strategy is a good idea, but they have a hard time justifying the costs, because the benefits are intangible. Or are they?
Using three research-based studies, I’ll show how a property manager’s tenant services strategy can have a quantifiable impact on your bottom line. And more specifically, I’ll show how an investment in a concierge service can save a property manager a lot of money, help drive profitability and result in a significant return on investment.
Equation #1: Offering Concierge Services = Increased Tenant Satisfaction
According to BOMA International’s survey “What Office Tenants Want,” the one amenity that tenants were most satisfied with were concierge services, with an average satisfaction rating of 4.39 out of 5. (Concierge services were followed by health/hygiene programs at 4.27 and secured document removal at 4.26). The survey pointed out that the availability of concierge services were reported by less than 25% of the respondents, indicating that the one amenity that the tenants are most satisfied with is actually offered in a relatively small number of properties. The BOMA study concludes that “if 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.” And since concierge services was the one amenity that tenants were most happy with, we can further conclude that offering a concierge service can have a more immediate and significant impact on tenant satisfaction than any other amenity.
Equation #2: Increased Tenant Satisfaction = Increased Tenant Retention
So if they have access to a concierge service, your tenants are happier. What difference does that make? A lot of companies across all industries spend a lot of time – and money – on customer service initiatives in an effort to make their customers happier. The theory is that a satisfied customer will keep coming back for more, resulting in repeat business that more than makes up for the cost of the things that are keeping the customer happy. And we’ve all heard that it costs a lot more to attract new customers than it does to retain existing ones. That sounds logical, but is that true in the world of commercial real estate? Do satisfied tenants actually result in more lease renewals? According to a study conducted by Kingsley Associates, a leading market research firm that specializes in commercial real estate, the answer is a resounding YES. Satisfied tenants are more than three times as likely to renew their leases than dissatisfied ones. And since we’ve shown that concierge services can have an immediate and significant impact on tenant satisfaction, we can conclude that offering concierge services directly contributes to lease renewals.
Equation #3: Increased Tenant Retention = Increased Profitability
Okay, now this is really where the rubber hits the road. We know that it costs more to attract new tenants than it does to retain existing ones, and happy tenants are more likely to renew their leases than unhappy ones. But how much should we spend on keeping our tenants happy? What’s the return on investment? Quantifying the benefit of tenant retention strategies has always been a tricky thing, but thanks to a study conducted a couple of years ago by real estate giant Jones Lang LaSalle, we know that by retaining a single 10,000-square-foot tenant, property managers stand to save nearly $1 million on hard costs like lost rent, tenant inducements, and other tangible costs. Retain two, three or more tenants a year and you can see how the savings are going to add up. And since you’re reducing expenses, those savings go straight to the bottom line.
That brings the entire concierge equation into focus:
Concierge services = happy tenants = renewed leases = cost savings = increased profitability
So what’s the ROI of offering concierge services? For a property manager with, say, 500,000 square feet of office space, the cost of providing an online concierge service like Eservus (www.eservus.com) works out to about $12,000 a year. (Eservus is about one-quarter the cost of a traditional lobby-based concierge, with a number of advantages, including 24/7 online access and typically a broader range of products.) Looking at the concierge equation, you can count on increasing tenant retention by offering a concierge service. (Let’s assume that concierge services contribute 25% of the impact of a property manager’s overall tenant service strategy.) So if you retain just one 10,000-square foot tenant a year as a result of your tenant service strategy, and concierge services is responsible for 25% of that, you can attribute annual savings of about $250,000 to concierge services. At a cost of $12,000 a year, that’s a return on investment of over 20 times!
With such an impressive ROI, you can expect to see more property managers turning to concierge services – especially online concierge services – to powerfully augment their existing tenant service strategy. And as we learned from the BOMA survey “What Office Tenants Want,” concierge services are offered in less than 25% of office buildings. So not only can offering concierge services retain tenants and save you a ton of money, they can also provide a competitive advantage for years to come.