Driving Property Returns through Tenant and Resident Engagement

Since 1985, Kingsley Associates has served the real estate industry by providing actionable tools to enhance stakeholder engagement and drive customer loyalty. An understanding of competitive strengths and weaknesses from the perspective of key stakeholders, such as investors, partners, market influencers, customers, or employees, is critical for any business to position itself for success. For real estate companies, a fundamental determinant of long-term success is maintaining an enduring organizational focus on engaging these key constituents, especially those paying the rent: tenants and residents.
Each year, Kingsley Associates surveys over 100,000 commercial tenants comprising several billion square feet of space, as well as over 4 million residents in multifamily properties. The results from the surveys yield powerful insights into customer needs and priorities, as well as best practices in building sustainable customer loyalty. Mining our proprietary database of industry trends and research findings, the Kingsley Index, leads to clear conclusions regarding the importance of customer service in real estate. The relationship is intuitive: increases in tenant and resident engagement lead to greater tenant and resident retention, ultimately yielding higher returns on investment.

Tenant and Resident Retention Drives Property Value

Property values and cap rates shift with the real estate cycle, which currently appears to be nearing a peak across many markets globally. For investors, core real estate assets are often priced for perfection with low cap rates that leave little room for error in projected rental rate growth and net operating income (NOI). In this environment, the retention of existing tenants plays a critical role in defending NOI and protecting asset value. Losing a tenant and incurring the cost of space turnover, including lost rents, make-ready costs, and broker commissions, can significantly reduce NOI. Investors already face the uncertainty of achieving the projected rental rate growth underwritten for their assets. The negative impact of a lost tenant only further magnifies the inherent risks to future cash flows. What can a property owner do to protect against tenant and resident turnover? Fortunately, the solution is not complicated – take care of the customer.

Service: The Controllable Renewal Factor

Real estate is no different than any other business when it comes to customer engagement – service matters. Yes, location, space requirements, building quality, and price are primary drivers in customer real estate decisions. However, when it comes time for lease renewal, those decision factors are largely outside of the influence of the property owner. Rental rate is dictated by the market, building quality is a capital-intensive factor to improve, and tenant business circumstances and space needs are outside of the property owner’s control. In fact, of the top renewal decision factors identified by office tenants (Exhibit 1), the highest-ranked factor that an owner can most effectively influence is property management service.

Tenant and Resident Satisfaction Leads to Retention

With any purchase decision, the greater the customer satisfaction, the more likely a customer is to repurchase a product. This equation holds true in lease renewal decisions as well, as we see a strong positive relationship between tenant satisfaction and likelihood of lease renewal. Exhibit 2 demonstrates that satisfied office tenants are more than three times more likely to renew their lease than dissatisfied tenants. Property owners seeking to drive long‐term value and protect NOI need to proactively monitor and improve tenant satisfaction by understanding and acting on priority areas unique to each property.

Measure What Matters: Property Management Performance

Kingsley Index data reveals the fundamental role property management plays in driving customer satisfaction and loyalty. Correlation analysis of survey data identifies a remarkably consistent finding across office, industrial, retail, and multifamily properties, that a tenant or resident’s overall satisfaction with a property is most closely tied to their satisfaction with property management. While landlords most commonly hear complaints involving building issues like temperature control, restroom cleanliness, or parking availability, very rarely do satisfaction levels with those areas truly drive overall satisfaction. Rather, overall satisfaction is more closely related to how property management responds to these complaints, communicates with tenants and residents, and resolves the problems. Therefore, by focusing on fundamental customer service areas, such as response times and proactive communication, property managers can have a direct impact on driving customer satisfaction, resulting in improved tenant and resident retention. To illustrate, Kingsley Index data shows that by proactively checking in with tenants at least once a quarter, managers can raise customer satisfaction levels from 74% to 94% (Exhibit 3). Property owners focused on ensuring the stability of cash flows and long‐term value enhancement need to set clear standards for key service areas and have a reliable property management performance and benchmarking program in place.

Understand Needs and Priorities to Drive Engagement

Once a property owner has implemented a program that effectively measures tenant and resident satisfaction, the established feedback loop will allow owners to actively listen to these customers’ evolving needs. By understanding customer priorities regarding things like building amenities, connectivity, and building sustainability initiatives, the property owner will make better‐informed resource‐allocation decisions that address unique market needs. For example, in 2012, the percentage of tenants who indicated that energy efficient / green building operations were important to them was 59% (Exhibit 4). In 2017, that percentage has now grown by 10% to 69% of tenants citing that this is important. Being in‐tune with shifting customer priorities allows owners to effectively allocate resources where (and when) it matters most.

Conclusion: The Multiple Benefits of Tenant and Resident Engagement

A focus on long‐term tenant and resident engagement pays off in many ways. There is a direct link between using service to drive greater retention, thereby improving property returns. Ultimately, this long‐term focus on engagement positively affects property values, as well as an organization’s brand identity. While real estate organizations traditionally focus investment on core competencies like development, acquisitions, and asset management capabilities, an organizational commitment to stakeholder engagement is also essential to ensure long‐term success.

This article is written by Kingsley Associates.