Most commercial real estate tenants don’t want to deal with the hassle of moving —so why do they do it?
While some reasons for relocation are out of your control (like needing a change in geography or more space) there are plenty of other factors that you can control to keep great tenants renewing their leases with you again and again. Learning the key dos and don’ts of tenant retention and creating an effective tenant retention strategy can give you the edge you need to avoid vacancies altogether.
Understanding tenant retention
What is tenant retention?
Simply put, tenant retention is how well you’re keeping your properties filled with rent-paying tenants every month.
Why is tenant retention important?
Whenever you’re holding on to an investment that isn’t making you money, you’re losing out on potential cash flow. And if you’re holding on to an investment that’s costing you money, you’re losing even more.
Not only are vacant commercial real estate properties costly for these reasons, but expenses associated with frequent tenant turnover can also put a dent in your bottom line. Prepping a vacated property for new tenants, real estate listing and marketing, and legal services can rack up hefty fees.
The higher your tenant retention rates, the less you’ll have to worry about all of the above. Having quality, long-term tenants results in higher profits and fewer headaches.
How are tenant retention rates calculated?
Your tenant retention rate is a simple percentage calculation. To find it, divide the number of tenants that have remained in your leased properties over a set period of time (usually one to five years) by the total number of leasable properties you own or manage. Next, multiply that number by 100.
For example, if you have 28 properties and you have retained 21 tenants, divide 22 by 28 and multiply it by 100 to get 75. Your tenant retention rate is 75%.
Ideally, you want your tenant retention rate to be 100%. If your rate isn’t where you want it to be, learning the dos and don’ts of tenant retention can help you push those numbers higher.
How to retain commercial property tenants: 18 dos and don’ts
Here are eighteen dos and don’ts to help you keep your tenants happy and meet their needs so that vacancies are a thing of the past.
- DON’T assume current tenants are content.
It’s easy to become complacent and assume that your current tenants are happy where they are, but if you’re not doing your part to communicate with them, you could be in for an unpleasant surprise come lease renewal time.
- DO survey your tenants and continue to market the best features of your property to them.
Brief surveys and short, in-person conversations are key to finding areas where your rental property and its management can improve. Additionally, regular newsletters highlighting your property’s best features and tenant offerings will remind your tenants why they chose your property in the first place.
- DON’T make tenants jump through hoops for routine tasks.
If tenants have to go through complicated or confusing processes to pay their rent or report maintenance issues, you’re wasting their time and mental bandwidth, and they’ll start shopping rental listings for a new space.
- DO streamline processes.
When possible, use a tenant experience platform like VTS Activate that makes it easy for your tenants to submit maintenance requests, get guests through security, renew their lease, and pay their rent. The less they have to think about these tasks, the less they’ll want to risk the unknowns of a new rental property.
- DON’T rely on tenants to take the initiative to renew their leases.
Most commercial real estate tenants are busy running their own businesses. Lease renewal is not usually a high priority, and crossing your fingers and hoping they’ll renew on time is a less-than-effective tenant retention strategy.
- DO provide special incentives for early renewal.
Commercial real estate tenants are interested in their bottom line, so offering incentives like property upgrades or a rent discount for early lease renewal is a win-win for both of you. You’ll avoid a costly vacancy and they’ll get a perk for staying. (Incentives can even include property upgrades you need to do anyway.)
- DON’T ignore or procrastinate calls and texts.
There’s nothing more frustrating to a commercial real estate tenant than a landlord or property manager who doesn’t communicate well, and a lack of communication can sour a tenant’s relationship with a rental property quickly.
- DO respond promptly and keep communication open.
Even if you don’t have an answer for a tenant right away, just letting them know you’ve gotten their message and are working on the issue can go a long way–but be sure to also follow up in a timely manner. It’s also a good idea to check in periodically even when they haven’t brought an issue to your attention, just as a courtesy to show you care about their satisfaction with the property. When possible, have a designated way for them to reach a live person if needed.
- DON’T make spontaneous property inspections.
It can be tempting to show up unannounced to check up on your building and its tenants, but this can feel invasive to your tenants and put them on edge.
- DO give tenants advance notice of inspections.
Your tenants will appreciate the extra time to put their best foot forward, and they’ll feel more of a sense of ownership over the space when you treat it more like their space than yours. Sense of ownership = long-term commitment.
- DON’T let properties get dingy or unsafe.
Nobody wants to spend their workday in a dirty or rickety building. Putting off regular maintenance erodes tenant trust and is a surefire recipe for future vacancies and higher repair costs later on.
- DO schedule timely maintenance and security upgrades.
Scheduling regular maintenance, deep cleanings, and upgrades to security features keeps properties looking great and operating smoothly, resulting in happier tenants who trust that the space they’re leasing will stay fresh and secure for years to come.
- DON’T raise the rent every year.
It can be tempting to raise your rental rates annually to keep up with the market, but annual increases can turn lease renewal time into a dreaded annual headache for your tenants.
- DO set reasonable rates below your competition.
Pay attention to what comparable properties are leasing for, and then set your leasing rates just below that. If your tenants start shopping around, they’ll quickly see that they’re getting a good deal and be less likely to want to relocate. Also, raising rates once every couple of years rather than every year can eliminate lease renewal dread.
- DON’T be a stickler on rent payments.
Obviously you need to run your business responsibly, but if you’re too strict with tenants who may occasionally need to pay late, your lack of flexibility will definitely count as a strike against you at lease renewal time.
- DO allow some flexibility when special circumstances arise.
Rather than immediately slapping late fees on a tenant who missed a rent payment, set up a meeting to chat with them about their circumstances and see if you can work out a deal that you both can live with. When tenants know they have a reasonable landlord they’re reassured that any future issues they may face will be resolved fairly.
- DON’T ignore tenants’ safety and well-being.
If the only communication between a property manager and tenant is when problems arise or when rent is due, it’ll leave a bad taste in the tenant’s mouth.
- DO provide fresh tenant experience offerings and upgrades on a regular basis.
Let your tenants know you value their safety and comfort by periodically making property security upgrades, offering entertainment or social experiences, and adding new amenities. Tenants will start to look forward to these unexpected perks, and they add value to your tenant experience.
The most important do? Understand your tenants on a new level.
While the above are important to lock in retention, understanding your tenants is essential. Without a comprehensive understanding of what tenants want (and don't want), you're left guessing. This means investment dollars put to poor use, amenities added that don't meet expectations, and a disjointed in-office environment that deters tenants from coming into your buildings, or worse; deters them from renewing their lease.
VTS Activate makes it easy to keep everyone on your team in the loop by integrating tenant communication, survey data, sentiment analysis, and important metrics like usage. These functions mean you business can consistently stay on top of tenant demands and understand their behavior on a new level. VTS Activate offers tenants a seamless interactive experience with you and your team, giving them the peace of mind they need to feel confident in their decision to lease with you.
To learn more about how VTS can help with tenant retention, digital marketing, asset management and more, visit VTS.com.
