Tenant Retention is on the rise but are you on track with the trend? Rentals are up and vacancies are down—resulting in major implications for rental growth. The main driver of optimistic valuations of commercial property. So if tenant retention is not on the top of your priority list – here’s why we think it should be.

Property Management

Matrix of key findings

Keeping a tenant is always economically advan-tageous to having to replace one. Here’s why.

Tenant retention is not a point in time activity at a lease expiration. It should be a proactive and ongoing effort to understand your tenants, their industries, and their needs and stay one step ahead. The probability of a successful tenant retention strategy increases measurably when you take an integrated approach that not only incorporates cutting edge occupier insights but also a thorough understanding of the investment objectives and lifecycle for the asset, leasing and capital markets landscape.

Put money back in your pocket by becoming your tenant’s best advisor. First you need to get to know them.

The place to start is by digging into the mindset of the tenant. Our deep bench of tenant representation and corporate occupier client experience helps our property management teams understand the pressures, motivations and strategies of your tenants.

While much of the growth and market buzz has been related to unique sectors such as high tech and energy, law firms and banking and finance firms deserve just as much attention. While not creating as much market buzz, these segments are still two of the largest occupiers in most office markets, and losing one can have a huge impact on your asset. JLL has recently completed research on both sectors, neither of which has fared as well in the recovery. Both are heavily focused on keeping operating costs down and improving efficiency of space use amidst a slow business environment, though some segments are performing better than others. Below are some findings from our analyses of these two segments, along with insights into how these trends can impact your tenant retention strategies for maximizing the value of your property.

Click through the links below to find the full reports on these industry segments.

Tenant Industry: Law

Tenant Industry: Finance

Key Trends Implications and operational and strategic response

• A flight to quality has diminished the amount of Trophy and Class A options for law firms, leading to higher rents and dwindling concessions. As leverage moves further away from firms in most markets, many tenants are more likely to renew than relocate. Of tenants who signed new leases in 2013, 74% of those >100ksf renewed, and 63% of tenants >50ksf renewed.

• Law firms are becoming more efficient by shedding law libraries, outsourcing filing and increasing support-staff ratios. Firms who relocated in 2013 moved into floorplates that were, on average, 7.1 percent smaller, equating to an average floorplate of 24,554 s.f. Law firms have also been decreasing their occupied space by 15-20% when they relocate.

• Law firms have increasingly focused their growth on cities like Houston, Denver, Palo Alto, San Francisco and Miami due largely to opportunities in energy, technology and from Latin America

• Landlords will be under increased pressure to be part of the solution for tenants seeking to improve the efficiency of occupancy. Given their daily interaction with tenants, the property management team can play a key role leading up to renewal discussions by evaluating tenants’ space needs and determining restacking opportunities.

• Efficient, smaller and rectangular floor plates will outperform and give landlords more leverage whereas larger square floor plates will take a more aggressive approach. Focus on the total occupancy costs of the tenants and not just the face rate. Some law firms have been willing to pay higher rents for the right type (quality and efficiency) of space, offsetting the rent/sf with fewer square feet per person.

• In higher growth markets, landlords with more efficient floorplates will have an advantage in attracting and retaining tenants, especially where existing quality spaces are scarce and the relief valve from new construction is generally at least year or two away.

Key Trends Implications and operational and strategic response

• As large banks refocus on core activities, they are also fa-voring renewals and consolidations and subleasing excess space in an effort to bring costs down. Banks are generally still stagnant or shrinking in traditional primary banking office markets, but their existing space in many cases is not ideal in terms of enabling productivity in their business and recruiting and retaining top talent.

• Driven by lower-cost office space, attractive amenities, and a desire to diversify, banks are increasingly moving front and back office professionals to secondary markets such as Jacksonville, Phoenix, and Salt Lake City. Jobs that no longer have to be in midtown Manhattan generally no longer are. Office space needs in these new markets are becoming more complex as client-facing and back-office workers now sit under one roof and formerly back office roles including technology are much more critical and core to the business.

• Compliance is the one new area of real growth in finance. Banks are vying to hire compliance workers for help navigating the complexities of new regulation. In addition, banks are increasingly focused on working with vendors that meet their compliance and ethics standards.

• Traditional large bank tenants will look to landlords and their property management teams to help impact costs by providing more efficient space and accommodating restack efforts to implement new density, space utilization, and modernization goals. A proactive approach to tenant satisfaction and communication along with close collabora-tion with the leasing team can identify opportunities to reco nfigure space and improve usage.

• The same bank in two different markets may act very differently. A property management approach that under-stands these nuances and is linked with the leasing team and research will have an advantage in devising retention strategies. As space usage becomes more complex, prop-erty management can play a key role enabling productivity across diverse business units and workforce generations.

• With compliance a key issue for banks, the property management team can help maintain a positive tenant experience by ensuring the vendor screening process com-plies with standards set by large tenants. This may seem obvious but in a more challenging regulatory and compli-ance environment can be the difference between retaining a tenant and losing one.

Michael Hartnett | Strategic Research | Property Management | +1 202 719 5762 | Michael.Hartnett@am.jll.com