Vacancy rates in office stock across the UK (and globally) are on the rise post-pandemic. There is a growing movement to return to the office, but occupancy rates remain low. This comes as no surprise, as hybrid working has forced commercial tenants to rethink their leasing requirements.
In that context, leading metrics of success are more critical than ever. Tenant satisfaction is one of the most important indicators for predicting the future success of an asset. By focusing on tenant satisfaction, those in the commercial property sector can retain more clients and improve occupancy levels.
In our recent webinar on ‘Driving Tenant Satisfaction', organised by our EMEA-based team, our panel of industry experts engaged in an in-depth discussion about how commercial property owners can compete for a dwindling tenancy and drive higher tenant satisfaction using data.
Discussion topics included:
- The latest CRE market data regarding occupancy and vacancy levels
- Changing CRE rental markets and tenant needs
- How commercial property teams can deliver on prime tenant requirements
- What role data can play in improving tenant satisfaction
The webinar was moderated by SustMeme Founder and Editor Jim McClelland and included the following panellists:
- Mark Stansfield, Senior Director of Market Analytics at CoStar Group UK
- Michael Purcell, Director of Asset Management at Eagle Street Partners
- Michael Young, Global Head of Partnerships at CIM
Read on for the panel’s key takeaways, or watch the full discussion here.
Current CRE trends and drivers
Data from Remit Consulting shows that occupancy hit a post-pandemic peak in early 2023 as employees returned to the office in greater numbers. “I’ve certainly had my face in more people’s armpits on the Tube each morning, albeit with a notable slowdown on a Monday and a Friday,” joked Mark.
However, he also shared that national office vacancy has risen to a six-year high—and while demand has indeed increased, vacancies are expected to continue to rise as a wave of supply hits the market in 2023. By Mark’s estimation, the office market has never been more polarised between the ‘best’ and the ‘rest.’ Some high-end submarkets in London like Paddington and Westminster still have low vacancy rates, evidence of what Mark calls “a clear ‘flight to quality’ trend playing out across the country,” as hybrid working becomes the norm.
CoStar’s data also show that demand for five-star-rated buildings has remained positive throughout the last three years, as firms prioritise buildings with ESG credentials and good amenities.“ BREEAM ratings are increasingly prized by tenants,” Mark said, with buildings rating Outstanding and Excellent attracting far more demand than buildings with ratings lower down the scale. These trends are helping to support office rents at the prime end of the market in all major cities, even as average rents remain stagnant.
Michael Purcell agreed, noting that COVID merely accelerated the priorities many firms had already adopted for ESG criteria. Michael Young identified the energy crisis as another driver behind the recent uptick in European demand for environmentally friendly solutions. “Traditionally, [building owners] would have had to go for capital-intensive projects. Now they can leverage tech to help them get the most out of what they have,” he said.
Young shared one example from a 100,000-square-foot building in Cork that recently deployed CIM’s PEAK Platform. “We’re already after delivering about €60,000 worth of savings—a 600% return on investment in only the first five months—because the building owners there decided to really optimise their existing equipment,” he said.
Owners, under pressure from tenants and investors on one side and potentially stranded assets on the other, find themselves looking for technology solutions to help combat decreasing occupancy levels and looming net-zero targets.
Changing tenant needs
While occupancy levels are improving post-pandemic, they aren’t returning to pre-2020 levels. A 2022 JLL study revealed that nearly 80% of firms are now operating a hybrid model, up from 20% before the pandemic. Full office adoption has dropped to about 15%. Rapidly changing tenant needs have necessitated rapid adjustment in terms of layout—with collaboration now the major purpose of a commercial office—and the amount of space a firm will need.
Purcell suggests that building owners work to understand what tenants want most, which starts with meeting them. “It sounds very simple, I know, but not everyone does it—physically taking the time to meet them,” he said. “From there, you can build the detail of how that property can deliver what they want.”
Attracting new tenants is more difficult, but the core drivers are often reasonably straightforward: instant access to WiFi, smart backbone systems, robust amenities, and stellar onsite teams. Purcell also spoke about tenant engagement platforms, which make it easier for tenants to integrate with the building. “Staff mightn’t have been there for some time, so they just don’t know the basic functioning of the building in terms of fire, assembly points, opening and closing times, who’s my security team, etc. So there’s smart tech around that to make it easy for tenants.”
In a marketplace abundant with supply, tenants increasingly look to markers like badges, particularly for elements like a building’s WiredScore and ESG ratings such as BREEAM.
How to deliver high tenant satisfaction
Buildings and their systems are incredibly data-rich environments—environments we can now make sense of through data analysis, identifying the trends and patterns that help building owners optimise.
As an example, Young shared how the PEAK Platform recently helped a client team identify an issue with a chilled water valve. The BMS indicated the valve was closed, but the Platform found a pattern that flagged the on-site team to inspect that valve. Sure enough, when the valve was inspected, it was leaking. “We had the opportunity to identify something before it became a catastrophic failure. And also, as a bonus, we’re saving energy,” Michael said. Through the combined effect of real-time utility monitoring and other easy-to-acquire data points, on-site teams can collaborate seamlessly with vendors to prevent issues from impacting tenants in the first place.
When asked how elevated tenant needs impact decisions at Eagle Street Partners, Purcell shared, “The fundamental is to maintain the tenants you have. At review, we make sure they want to stay, if they like the building, if it works, and we build credibility with them over our term.” He noted that smart tech is essential to this conversation because it provides the benefit of continuous assessment. Owners can determine how best to use that data: daily, weekly, monthly, or annually. “No two buildings are the same,” Michael said. “But once you have the data, you have the data, and you can strategise two, three years down the line.”
Purcell did offer a word of caution, however. “We don’t want to overburden the tenants with smart tech,” he said. “They don’t need to know all of it; they just need to know that we are in control and we’re doing the best we can with the building we have.”
Young echoed the sentiment about preventing overwhelm, noting that in the past, on-site teams didn’t necessarily have the technical skills to deliver on outputs from building analytics tools. But, Young said, “The technology has come on leaps and bounds, even in the last couple of years. We’ve been able to bake in a lot of that expertise and know-how into software that can be deployed across buildings by operations teams, to allow non-technical users to be empowered to get visibility and transparency into what’s going on in the building.”
Ease of use and instant accessibility drives adoption from operations teams and ensures they can deliver the superior tenant satisfaction that building owners seek. Even Operations teams with little to no technical expertise can benefit from analytics alerts and take actions that prevent system failures before tenants notice they’ve happened. FMs are also empowered to maximise time on-site for BMS vendors, giving clear, prioritised instructions about the actions that will make the biggest impact.
The role of data in improving tenant satisfaction
Asked how building owners can lure tenants back to commercial properties during periods of high vacancy, Purcell mentioned the value of streamlined reporting. When property owners can provide a robust reporting history of optimised energy and water usage, both tenants and prospective buyers can better understand how the building fits into their broader environmental objectives, without having to chase that data.
In addition to higher-level strategy informed by robust reporting, data analytics can also help support day-to-day tenant needs. Real-time reporting is in high demand for its wide range of uses, including utility monitoring. Young reminded viewers that building analytics technology enables building owners and operations teams to work smarter, capturing data across their portfolios and optimising the issues that make the most significant impact. “In terms of speed to value, it can be deployed quite quickly across buildings,” he noted.
In closing, Young brought the conversation back around to environmental objectives. “It’s not often we get a real win-win where we have something that can absolutely help with challenges and can also really deliver for the environment,” he said. “But we have a real sweet spot [with building analytics].”
Despite the swirl of negativity surrounding commercial property, Mark’s data provided a silver lining. “Most economists don’t fear a repeat of 2008,” he said. Inflation will likely fall this year, which could mean a more relaxed policy from central banks that would reignite property markets. Demand and rents are holding up well despite market headwinds in top-tier spaces. “Landlords and nimble investors that are adapting to all these changes, responding to tenant needs and giving tenants a reason to stay, are well-placed to do well,” Mark said.
CIM's PEAK Platform is a best-in-class building analytics SaaS technology, improving efficiency, sustainability, and tenant comfort across property portfolios. Discover more by watching a demo.