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High Expectations Shape Service Delivery Tenants Take Much for Granted
January, 2007
By Barbara Carss
In a market where building tenants have come to expect a certain level of service, real estate providers are more likely to draw attention for falling behind their competitors than for outperforming them. In a recent discussion of trends, issues and challenges in real estate operations, senior ranking industry executives reported that it's increasingly difficult to impress their clients.
"The major landlords are all pretty good at service delivery and I think if you asked major tenants they would probably tell you there's not much difference among us," Stephen Smith, Vice President, Real Estate Management, National Programs, with Oxford Properties Group, told attendees at the 2006 PM Executive Forum, held in conjunction with the annual PM Expo, November 29 to December 1, at the Metro Toronto Convention Centre.
Participants in the panel discussion contemplated a range of factors that potentially influence tenants' decisions about leasing or renewing leases, including operating costs, customer service, building amenities and market dynamics. Panelists also assessed how security and crisis planning demands, the burgeoning interest in green buildings and other emerging trends are shaping service delivery and tenants' expectations.
"We've found that retention is more correlated with market vacancy than it is with tenant satisfaction," Smith observed. "In a higher vacancy market in Montreal we see greater churn. In Calgary we see virtually no churn."
"All major landlords have excellent tenant service platforms," concurred Chris Holtved a Senior Vice President with Dundee REIT. "It's what you do outside the lease that drives tenants' perceptions. It's not necessarily what you do that they expect. It's what you do that they don't expect." Ideally, he maintained, commercial tenants prefer that building managers keep a low profile, while quickly addressing any situation that calls for problem solving.
DIFFERENTATION DIFFICULT
Tenants' attitudes and assumptions about service delivery and operating costs have been shaped by this environment where most building owners and/or management firms offer the same high level of relatively comparable services. As evidence, Holtved recounted Dundee REIT's somewhat failed experiment in offering gross leases in two buildings experiencing high vacancies in Toronto's midtown office market.
"We surmised that cost certainty would be a really important issue for tenants," he recalled. "The reason it wasn't successful was largely twofold. One, if made it very difficult for brokers to compare deals. Secondly, to a large extent there weren't very many tenants that came along where that had been an issue for them. We found that it was really a non-issue in the marketplace. "
Nevertheless, tenants do need to know and understand what underlies operating costs. "It's consistency in operating costs that tenants are looking for and, perhaps ahead of consistency, it's the transparency of operating costs," asserted Barbara Rodgers, Senior Vice President with Arcturus Realty Corporation.
RESIDENTIAL MARKET DYNAMICS CHANGE
In the residential market, Ontario landlords in particular saw little need to compete for tenants and little payback potential during several years of low vacancies and rent controls. However, the industry is responding to a new market dynamic in the 2000s, which includes both opportunities to increase rents to what the market will bear upon turnover, and aggressive competition from the condominium/homeownership market. Vacancy rates have climbed and stayed high in recent years.
"Making money prior to 1998 was all about cutting costs and delivering space," reflected Mark Kenney, Vice President, Operations with CAP REIT. "We had an environment where service didn't really exist."
CAP REIT has recently restructured its operations, establishing management divisions for approximately every 4,000 units. The company actively communicates with tenants and has developed services aimed at forging a sense of community in its buildings. This is seen as a way to reduce turnover and, ultimately, operating costs.
"Tenant retention is probably the number one driver of our discretionary costs. The turnover costs are quite substantial in apartments," Kenney said. "So we can actually measure our retention by our turnover costs."
STAFFING ISSUES
The company's human resources strategy is geared to broadening staff expertise, particularly given the new requirements for service. Youth and diverse business backgrounds are reflected in many of the recent hires for senior management positions. "We've really jumbled up the job descriptions," Kenney noted.
Employee training and retention - to reap the returns on the investment in that training - are key goals. "Compensation is, I think, the big issue," Kenney acknowledged. "But you really have to form a loyalty environment. If you can foster that form of environment, I think that goes as far as compensation."
Other panelists also stressed the importance of developing and keeping expertise within their companies. For example, Oxford has adopted a new approach to the assistant property management role - a position now designed for frequent turnover where entry-level managerial candidates can get some experience and then move on. "We had to make a conscious decision that we weren't going to have APMs anymore who were going to be lifers," Smith said.
Staff at Arcturus Realty is encouraged to pursue professional development, both through industry-related and special interest courses. The company also sees summer students and co-op students as a rich recruitment ground. "We've had quite good luck in bringing people in through the co-op program and keeping them with us after they graduate," Rodgers reported.
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