By Kirk Layton, President & Co-Founder, The Tenex Group
In November 2022 I attended a webinar called “Behind the Curtain: The Economics Behind Tenant Satisfaction and Renewals.” Now, if that’s not an enticing title, I don’t know what is! The webinar was co-hosted by Grace Hill (parent of Kingsley Surveys), the Maastricht Center for Real Estate and the MIT Center for Real Estate – some real heavyweights – and they presented, for the first time that I know of, a direct correlation between tenant satisfaction and tenant renewals. (If you’d like to check out the webinar, visit the Grace Hill website.) Just a heads-up … it’s a 45-minute webinar and some of the information is pretty technical, so if you’re short on time, read on for a summary!
Forward-thinking property managers have always known that the investment they make in tenant experience pays for itself in the form of tenant retention and brand equity. But prior to this groundbreaking study, there hasn’t been a way to quantify the return on investment in tenex, other than anecdotally.
For example, Jones Lang LaSalle once conducted a study that determined that the cost of replacing a single 10,000-square-foot tenant, compared to retaining that tenant, is close to $1 million. Further, Kingsley Associates famously reported that satisfied tenants are more than three times as likely to renew their leases than dissatisfied ones.
While these and other studies made sense intuitively, none of them helped property managers figure out the direct cause-and-effect relationship between tenant experience and their bottom line. That’s why this new study is such an eye-opener.
To get into the nitty-gritty of the study, I encourage you to watch the webinar, but here’s a summary of the main take-aways, at least for me:
In general, tenant satisfaction is improving, even during and post-COVID
Renewal intention understandably dropped in 2020, but went up slightly in 2021
The researchers found that a one-point increase in satisfaction on the Kingsley survey resulted in an 18% lower likelihood of tenants leaving, and the intent to renew increased by 8%
The same one-point increase in satisfaction decreases vacancy by 7%
Tenants are more satisfied in green buildings, which have 7% higher net effective rents
I expect that we’ll see more of these kinds of studies in the future as the CRE world continues to embrace how tenant experience drives tenant satisfaction, increases occupancy rates and bolsters net effective rents. Many of us have always believed that investment in tenant experience made sense, but now we have the data to prove it!
I’d love to hear how do you measure the effectiveness of your tenant experience strategy, so please let me know in the comments section below.
