Understanding Tenant Behavior In Commercial Real Estate Leasing Post-COVID
To keep our NOI at its peak, or get it there, we need to understand how our tenants think and act when leasing space for their business or residence.
Being aware of their expectations and concerns helps us design our offerings to ensure satisfaction and to keep our properties fully leased with high-quality tenants.
Some occupant needs and desires are perennial, whereas others have very much to do with the pandemic and its ongoing economic, social, and health consequences.
Here, we look at how to address health concerns, deal with economic risks, and position your brand and properties to meet tenants’ needs.
Marketing your properties and brand
If your prospective tenants don’t know about your properties, or believe in your brand, you’re going to have a tough time filling your units.
In the 2020s, marketing and branding are crucial, more than ever, to cut through the noise, get eyes on your offerings, and establish credibility.
Your properties need to be in locations that align — in image and function — with your tenants’ values, tastes, and environmental/economic needs (i.e., sustainability).
As for the image part (that is, your brand position), most of that is expressed and absorbed in the online realm. Your web presence and tenant management platform are where users learn more about you, what you stand for, and how you interact with (in other words, treat) them.
For function, users need spaces that are modern (or at least up to date) and efficient, with high-quality, tech-enabled fixtures, furnishing, and equipment (FF&Es).
In the area of sustainable design and operations, both function and image are positively positioned by their adoption.
Sustainable design and operations strategies provide health benefits — clean air, natural views, and thermal comfort — that bolster productivity and mitigate the legal risks associated with sick building syndrome (SBS).
Admirably, tenants, as do most consumers today, expect the firms they enter business relationships with to be environmentally and socially conscious in all aspects of their operations.
And on a pragmatic level, tenants want spaces that go easy on electricity and water.
Economic risk — caution in leasing
Committing to a new or renewed lease is a hard choice for tenants in the current economic climate.
Market instability in the COVID aftermath, falling lease rates in some asset classes, and soon-to-rise interest rates are compelling users to negotiate for terms that protect their interests from economic risk.
Tenants are demanding shorter, more flexible lease terms that will reduce their loss — or position them favorably — should lease rates or interest rates shift during the term, or if the tenant must break the lease for unforeseen external reasons.
The change from LIBOR to SOFR also lends some uncertainty in leasing and creates additional concerns that must be addressed contractually.
Plus, the pandemic brought into focus the importance of the force majeure clause and the need for language that specifically describes the circumstances under which tenants can be relieved of their obligations.
For the owner-operator, the best advice is to address these concerns upfront. Proactively direct your legal department to prepare new lease agreements that offer fair terms that benefit both parties.
Coronavirus safety concerns
The threat of infection is yet another mounting influence on how tenants select and utilize their spaces, with the intent to protect their staff and transient users (clients, visitors, vendors, etc.) taking priority.
During the height of the pandemic, landlords and prospective tenants found new ways of showing properties, using AR/VR tech and video conferencing to conduct walkthroughs and guided tours.
Accelerated by the circumstances, the adoption of digital documents and e-signing have rendered paper and pen obsolete, further enabling the leasing process to proceed without close personal contact.
Also, the need for social distancing and sanitary conditions are intensifying the demand and expectation for touch-free building systems, antimicrobial surfaces, and proper ventilation.
Further, the emergence of part in-office, part work-from-home business models is amplifying the need for open, flexible space for focus and collaborative work.
To learn how to adapt and provide greater value, discuss these concerns with your current and potential tenants to better understand their needs.
Care fosters loyalty
Taking marketing, economic, and safety considerations into mind, you can develop your portfolio and leasing strategy to match the expectations and needs of your tenants.
When your tenants are secure in their contractual and economic positions, experience minimal operational costs, and have a space that meets their wellness and collaborative requirements, you’ll have an optimal occupancy rate and the lowest turnover.