Commercial Tenants Satisfied, But For How Long?

The art of commercial property design has been changing recently, incorporating some ideas called "creative," especially on the office side.

The art of commercial property design has been changing recently, incorporating some ideas called “creative,” especially on the office side. The term is elastic enough to include a lot of different things—from genuinely radical re-arrangements of work space to minor amenities such as Foosball tables—but whatever it is, the goal of creative office space is to keep workers happy. Happy workers work better, or at least more, and that makes employers happy. Happy employers tend to stay where they are, and important consideration for landlords.

Creative or not, how satisfied are tenants with their space in the post-recession office market? It’s an increasingly important question for owners and property managers, because as the economy expands, companies are more inclined to look elsewhere for space, either in newer, more creative buildings, or by undertaking built-to-suit projects. The climate for BTS is particular robust in many markets now, since the perception is that interest rates aren’t going to be at historical lows that much longer, maybe not even as long as the end of 2015.

In its latest survey of tenant satisfaction, San Francisco-based Kingsley Associates said that tenant satisfaction and perceived value continued to increase during 2014. For the four quarters ending in December 2014, 88.9 percent of tenants said that their overall satisfaction was “good” or “excellent” with respect to their current office space; that’s up a bit, 0.4 percent, from the previous period. That’s reasonably good news for landlords wanting to hold onto their tenants, but even so, a landlord that slacks off in property management risks tenants jumping ship.

That’s because of the factors within a landlord’s control, property management continues to be the major deciding factor for commercial tenants considering renewal, Kingsley says (to renew or not to renew, that’s the question). And it’s coming up more often, now that the recession is in the rear-view mirror and companies are adding some jobs. Sixteen percent of office space users now anticipate needing more space (another finding of the survey), and so do 17 percent of medical office users. Only 12 percent of retail space users anticipate the need for more space—reflect the relative weakness in some retail sectors, but 21 percent of industrial users do, reflecting the relative strength in manufacturing and distribution.