Tenant Retention, Renewal is a cost effective development strategy

  

(Rachel Wein, AIA, heads WeinPlus Real Estate Advisory Services in St. Petersburg. A former development manager with the Sembler Company in St. Petersburg and senior associate with Ernst & Young’s Real Estate and Construction Advisory Services in Philadelphia, Wein earned her bachelor of design, master of architecture and master of science in real estate degrees from the University of Florida.)

 By Rachel Elias Wein

Tenant retention and lease renewal ranks as one of the most cost-effective development strategies a commercial property owner can implement.

Old-school landlords might smirk at such a claim, but for the new generation of professional property managers, property owners and advisors who will define Florida’s post-recession real estate market, tenant retention ranks at the top of the punch list.

The logic is irrefutable. In a buyer’s market, existing tenants can make or break a retail center, office building or industrial facility by relocating.

Recessionary budgets notwithstanding, most major tenants including anchor retailers, report substantial recruitment offers from competing properties.

A good tenant is a landlord’s unofficial operating partner. So long as a tenant’s business prospers, the landlord benefits. For savvy landlords today, “How can we help you succeed?” comes before “Where’s the rent check?”

Marketing costs associated with recruiting new tenants, coupled with the carrying cost of empty space and tenant improvement dollars amount to a fraction of the cost of retaining existing tenants. This assumes there is another tenant to recruit.

In this market, tenant turnover is costly.  Lost profits incurred during the turnover process can impact portfolio value to the tune of tens of millions of dollars.  The existence of vacant space significantly impacts the value of a retail property.

For many landlords, tenant retention is a simple matter of concessions. Certainly, concessions are a part of the mix of good tenant retention efforts, but the most valuable tenant retention efforts constitute minimal financial commitments.

The first and most important tenant retention task is contact. Good landlords maintain regular, ongoing contact with their tenants and structure those contacts to effect a positive outcome. Most tenants, including anchors, are struggling to meet their objectives in a recessionary economy.

Marketing efforts that generate traffic to a retail center can prove enormously valuable to a tenant—and generate strong tenant loyalty.  Typically, rent constitutes approximately 10 percent of a retailer’s sales.  A 10 percent sales increase—a realistic goal for a landlord-led marketing program—equates to free rent and a very happy tenant. 

Considering the economic impact of tenant retention on operating revenues and portfolio value, a review of leasing agent and property manager commission structures can incentivize tenant retention with dramatic results.

Above all, the most valuable tenant retention effort is contact.

Make the point obvious. And while you’re at it, ask the tenant, “What can I do to help you succeed?”

Contact:  Larry Vershel or Beth Payan, lvershelco@aol.com