Nick Romito, CEO of VTS.
The office ecosystem we knew and understood for nearly a century is over. No matter the size of the firm or the business sector, companies are having to recalibrate how much office space will be required going forward—as well as how that office space will be utilized by their workers.
To me, the work-from-home versus in-office model is no longer the real debate. Nearly three years since the onset of the Covid-19 pandemic, although we’ve seen demand fluctuations, the need for most companies to maintain a physical presence in the form of office space still remains true.
However, my company’s February 2023 VODI (“VTS Office Demand Index”) report (registration required), which aggregates data from U.S. office markets, found that new demand for office space is currently down 46% from its average 2018 to 2019 level, which is our benchmark for pre-pandemic normalcy. That level of new office demand is considerably lower than in 2022 and throughout most of 2021.
What Does This Mean?
This data emphasizes that we are in a renewals market, and with very limited demand, the importance of retaining tenants is at an all-time high. Therefore, I believe landlords need to arm themselves with the right tech and data that can help them gain actionable insights on what is needed to keep existing tenants happy in their workplaces. Tenant experience technology can help provide the insights needed for landlords to best understand exactly what the employees occupying their office spaces are looking for and then service those needs accordingly.
What can landlords do to stay competitive in a renewals market?
Know What Your Existing Tenants Want
Capturing tenant insights is one part of the puzzle; actioning on them is another. As I expect 2023 to be largely a renewals-focused market, implementing a means to manage tenant relationships and elevate their on-site experience can help tremendously. Current tech solutions can help you retain existing tenants and attract new ones amid limited demand by offering insight into what matters to employees in a building—while giving you the information to make data-driven decisions across portfolios.
When vetting tech platforms to implement these solutions, make sure to keep an eye out for the type of data the platform is providing you. At a minimum, you should be able to see occupancy trends, real-time space and amenity utilization data, property performance and tenant activity.
Flexible spaces are at the forefront of tenant demands. According to CBRE’s “U.S. Real Estate Market Outlook 2023,” “High-quality and well-located office buildings with amenities that enhance employee well-being and engagement are poised to attract the bulk of occupier interest.”
Employees are increasingly saying that hotel-style features impact their desire to want to come to an office, including some who see the failure to provide the proper on-site amenities as a deal breaker. Returning to the office, most employees want to occupy workspaces that allow them to work at various stations with uninterrupted connectivity.
They also want to have access to open collaborative spaces, such as lunchroom benching and more “living room” style spaces for a more casual atmosphere to socialize within the office setting. But in an age where private offices are typically reserved only for upper management, workers also want access to closed-door spaces when they need to work quietly and in isolation.
From a digital standpoint, I find that tenants are looking for tech-enabled systems that integrate with the on-site experience, whether this is for booking conference rooms, arranging for guest and front-desk check-ins or controlling the HVAC.
Ensure A 360-Degree View Of All Your Portfolio Activity
Again, in a renewals market, data is key to navigating uncertainty. Ensuring you have a 360-degree view of your portfolio activity can provide you and your leasing team the visibility to make strategic decisions and get ahead of potential vacancies. This allows teams to operate more efficiently, freeing up employees’ time for other outputs to win new business and manage other parts of your operations.
Some of the most important elements when gaining a clearer picture include upcoming lease expirations, current tenant relationships, tour activity in your portfolio and trends in the market.
Overall, it’s necessary to proactively build and maintain relationships with your tenants on an ongoing basis, not only when notifying them that their lease is expiring. Make sure to continue a regular cadence of communication and ensure you’re understanding their needs as they shift.
I believe that using technology should be an integral part of your portfolio strategy and management, particularly in an unstable market. Commercial real estate decision-makers need the agility that up-to-date insights provide in order to pivot their strategy and operations and stay ahead of the competition.
Technology and data have made commercial real estate operations not only more efficient but also more informed—ensuring they’re no longer making decisions in the dark. In a shaky economy and real estate market, I see this as the path to better understanding your tenants and ensuring you’re not leaving dollars behind.
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