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When it comes to describing the relationship between tenants and landlords, “happy” is not necessarily the first word that comes to mind. From wrangling about lease terms to going back and forth about the temperature in the workspace, the reliability of elevators, or the condition of restrooms, there is plenty of potential for conflict between building owners and their tenants.
But a survey of Building Operating Management readers who lease space in the United States shows that most tenants are satisfied with the spaces they lease and the landlords they lease space from.
The survey shows that a solid majority of tenants are consistently satisfied with more than two-thirds of their landlords when it comes to services provided by the landlord and to responsiveness to requests and complaints. Only a handful of respondents is consistently dissatisfied with more than two-thirds of their landlords on those two accounts. (See “Landlord Services” below.)
A large majority of respondents is also satisfied with most of their leased space when it comes to specific aspects of the building and the interior environment ranging from indoor air quality (IAQ) to power, elevators and restrooms. (See "How satisfied..." below.)
One reason why tenants are so satisfied: They take a hard look at space before they lease it. When it comes to evaluating space to be leased, the survey shows that very few things are not important to tenants. (See "How important..." below.) In fact, only three elements covered in the survey — availability of 24 x 7 chilled water, availability of daylight and other green elements, and the reliability and speed of elevators — were rated “Not Important” by 10 percent or more of respondents. What’s more, for at least two of those items, “Not Important” may reflect varying tenant needs or building types more than intrinsic importance. For example, not all tenants need 24 x 7 chilled water for their operations. And the survey was not limited to high-rise spaces, where elevator speed and performance are likely more important than they are in low-rise buildings.
The survey was e-mailed to 6,662 readers of Building Operating Management. The base included facility executives on both the tenant and landlord sides, but a screening question limited responses to facility executives responsible for leased space in the United States. Two hundred ninety facility executives responsible for leased space in the United States responded (4.4 percent of those to whom surveys were e-mailed).
How Satisfied Is “Satisfied”?
Although the survey itself and follow up interviews with respondents make it clear that the typical respondent is satisfied with most leased spaces and most landlords, that doesn’t mean landlords can rest on their laurels.
“We’re generally very satisfied with the spaces we lease,” says Trex Morris, Americas director of real estate for Ernst & Young, who is responsible for leasing 6 million square feet of space in the United States. But that’s not to say that problems never arise that might lead him to look for new space at the end of a lease term. In some cases, it’s dissatisfaction with some element of the space itself. More often, the issue has to do with a building that has aged and hasn’t been updated. The need for a new location is another reason to move, he says.
Landlords should also be aware that “satisfied” means different things to different people — and sometimes different things to the same person.
“If the power is working, we’re satisfied,” says Grant Eoff, real estate and facility manager for Amazon.com. IAQ isn’t as black and white. An IAQ complaint might turn out to be nothing more than a new employee wearing a perfume that bothers other people.
“We usually don’t have too many IAQ issues,” he says. “And five out of 10 complaints are unrelated to the building.”
To Donald Riley, director of facilities management for Alcatel, “satisfied” means that space meets minimum requirements. But dissatisfaction can lead to very different outcomes, depending on which aspects of leased space are involved.
“Instability of electrical power could lead to a relocation decision within days,” he says. “Unresolved housekeeping or air conditioning issues might persist for longer periods without forcing a relocation.”
The survey did highlight one priority issue that tenants are relatively less satisfied with. Although 69 percent called utility costs a critical consideration, only 37 percent are satisfied with more than 75 percent of their leased space; 21 percent are satisfied with less than 55 percent of their space.
When the Lease Is Up
Short of moving out of a space, dissatisfaction can play an important role when the lease is up. “It’s important that people can do their work comfortably,” says Lori Dauven, facility manager, Morningstar, Inc. “Happy employees are going to stay.”
At the top of her list are power capacity and the availability of backup power. “Those issues will override cranky elevators and hot and cold calls,” says Dauven, who currently is responsible for more than 170,000 square feet of office space. “We’re a very computer-intensive company.” With responsibility for several data centers, Dauven is one of many facility executives for whom reliable power is critical.
But even if a tenant isn’t completely satisfied with some aspect of a space, even one as important as comfort, that doesn’t mean the tenant will automatically move out after the lease expires. “The reality is it’s still a financial decision,” says one facility executive who did not want to be identified because of the sensitivity of the subject. “You have to weigh the cost of picking your operation up and fitting out new space. So the existing landlord has the benefit. Of course, if it’s IAQ or something else that’s affecting our ability to do business, that’s different.”
Due Diligence Pays Off
Although there are cases where tenants are very dissatisfied with their space, the survey results show that the opposite is far more likely to be the case. One reason is because tenants do their homework before they sign leases.
Ernst & Young is a good example. The company faces stiff competition for employees. “We think our space gives us a competitive edge,” says Morris. “We don’t ever go with the low price. I’ve been here 10 years and I don’t think I’ve ever seen us do that. We go with the best option for the firm.”
That means finding the right amenities, location, building infrastructure and lease terms. “It’s very important to us that we get it right,” he says. To do that, the firm makes a significant investment in evaluating a new location before moving in.
A critical review of important characteristics of a space should continue after a tenant has occupancy. To allow a space to deteriorate so much that a tenant would feel the need to move out would probably be as much the fault of the tenant as the landlord, says Steve Foor, second vice president and director, facilities and services, Lincoln Financial Group.
“I’m not one of those people who push all those things back on a landlord,” says Foor. “I try to keep an open dialogue with the property management firm and the landlord. If we’re not happy, they will certainly know it.”
Foor says working with landlords and property management firms is like evaluating employee performance. “My employees who walk in for a performance appraisal shouldn’t be surprised when they walk out the door. The landlord shouldn’t be surprised at the end of the lease term to find out that the tenant is unhappy.”
The real estate market offers another reason for the high tenant satisfaction numbers. Today, tenants have more choices of space and more leverage than they did in the late 1990s, when the economy was booming and dot com firms were gobbling up space.
Partly as a result of the softer real estate market, many landlords have adopted a fresh approach to their relationship with tenants.
“There’s a new way of looking at things,” says Dauven. “The landlord becomes a partner, not just a landlord. They understand that customers need to be able to do business in the space they lease.”
Still Room for Improvement
Satisfied as they are, however, most tenants still see room for improvement. “What’s frustrating is a property management firm that’s defensive right out of the gate,” says Eoff. “I understand it. Their customer is the tenant, but their allegiance is obviously with the owner. They’re on a teeter totter. But from a tenant perspective, it makes me wince. Usually I have to play this cat and mouse game. I’m not a looking for them to break the rules. I’m paying the bills, and I get a lot of pushback.”
A lack of responsiveness can backfire on landlords. A new tenant that has to call repeatedly to get a response is conditioned to complain. A facility executive can become a squeaky wheel when that seems the only way to get things done. The best strategy to prevent tenants from becoming problems, facility executives say, is to work with them from day one.
Among the vice presidents, directors, and managers of facilities or real estate who are typically involved in selecting leased space, Henry Thomas stands out. That’s because he’s not responsible for facility or real estate management. He’s director of corporate security for Freddie Mac. Nevertheless, when it comes to leasing decisions, he says, “I have a vote at the table.”
— Edward Sullivan