As you can imagine, my 2014 goals are still very present in my everyday thoughts. The first goal I discussed in my recent blog post was to increase occupancy in the buildings we represent. I spend a lot of time thinking about how to win tenants. During last year’s CBRE conference, there was a session on Related’s Hudson Yards project. The leasing team explained the amazing development on the west side of Manhattan and the changes to the infrastructure in the neighborhood. Three tenants, L’Oreal, SAP, and Coach have committed to the first tower and just yesterday, Time Warner announced it would be moving from Columbus Circle to Hudson Yards as well.
After the session, I approached two of the panelists and asked, “What was the one thing that won the day?” For each company, there was a different answer. I was hoping that there would be one answer, which would allow me to take a clear message back to my landlord clients, but there wasn’t. They all made their decisions for different reasons.
When I started in the commercial real estate business, the joke was that we could do a survey of the market, but the building closest to the boss’ house was the building that would win. That couldn’t be further from the truth in today’s market. However, here are some of things that tenants do consider as they are making their decisions:
1) Mitigation of Risk
In major corporations, making the wrong decision can cost someone their job. Years ago, we were doing a national data center search for one of our clients and the best existing data center we found was in San Francisco. It was immediately crossed off the list. The real estate director didn’t want to be responsible for recommending a building that could be impacted by an earthquake, even if the building was reinforced.
2) Landlord Reputation
This goes hand in hand with mitigating risk. Is the landlord a company that will deliver what they promised and on time? Will the employees be happy in the building? How do they treat tenant requests during a lease? Do they have a history of strong tenant retention? These are all questions we are asked by our tenant clients as they consider buildings.
Again, this goes back to mitigating risk and the landlord’s reputation. Will the deal be an easy process? Can we get through the lease in time? Will their architect turn around plans quickly? There’s a reason certain landlords, like my client KABR, win more times than they lose. If the process is easy, it removes significant risk and gives the tenant comfort that they are important and will be given attention even after they move in.
As I mentioned, it’s no longer about being convenient for the boss. Mass transit, especially access to the train, is becoming increasingly important. Access to the right labor pool is critical, especially to growing companies.
Is this building the image we want to portray, not only to our employees, but more important, to our customers? Is there an opportunity for building signage and how does that signage fit in with an overall branding strategy?
As companies seek to improve their workplace, the shape of the floor plate, the access to natural light, and in some cases, the ability to pack as many people into the space, is a greater part of the conversation. Landlords need to be concerned about the impact to building systems and bathrooms, but many companies are less concerned with cost per square foot as they are with cost per employee (and rightfully so, in my opinion).
It’s a bigger part of the conversation than ever. As companies seek to enhance their employees’ experience, they want to know what the building can provide. A building-shared conference center or training room can also help a tenant gain efficiency, as they don’t need to include it in their space if it already exists in the building.
With the greater efficiencies comes a greater need for parking. We recently won a tenant because our landlord client was willing to give them the rights to all of the parking, even though they were only leasing 80% of the building. Solving the parking problem was the largest hurdle to overcome in that deal.
Last on the list for a reason, but still on the list. All companies still look at price, but some are willing to pay higher rates because it better supports the business. We always tell our clients, the business should drive real estate, not the other way around. While the market keeps the pricing of buildings within a given submarket similar, there’s a reason certain buildings can and do charge more. It’s because of all of the reasons above.
So how do we know which of the above will win the day? We don’t. It’s listening on the tours and in meetings about what’s important to individual companies and the decision makers. If we ask the right questions, we can hope to crack the code.
If you are a landlord or represent landlords, do you agree with my list? If you are a tenant, why did you choose your space? I’d love to hear your opinion on this topic.