Why Tenant Retention is On the Rise

Tenant retention is on the rise
Tenant retention is on the rise

What’s the tenant retention rate at your business center? Is it improving? Do you even track it? Could one major tenant loss cause a major set back?

OfficingToday.com is publishing a series on tenant retention, including expert advice, strategic initiatives and common sense tips. But before we launch into the nuts and bolts, let’s take a look at the office tenant retention landscape so you can see the big picture.

According to Kingsley Associates’ Q2 2013 Office Industry Trends, tenant retention is on the rise. Just under 63 percent of office tenants currently intend to renew their leases. For the four quarters ending on June 30, 2013, 62.8 percent of tenants indicated that they “definitely would” or “probably would” renew. That’s down from the previous period’s 64.2 percent, which was the highest percentage observed since the beginning of the financial crisis in 2008.

Despite a decrease in the most recent quarter, loyalty remains stronger than it was a year ago in six of the 10 largest markets in the United States. Only in Washington, DC has there been a precipitous decline, with only 58.2 percent of tenants indicating intent to renew. That compares to 63.1 percent for the year-ago period.

“A dip in renewal intent indicates that landlords may finally be capturing some rental growth,” says John Falco, a principal in Kingsley Associates’ Atlanta office. “Persistent vacancy has been a nagging issue for them, but certainly some submarkets have tightened considerably. Aggressive incentives, such as multiple months of free rent, are drying up.”

While intent to renew declined, overall tenant satisfaction remained relatively stable during the period as property managers continued to focus on customer satisfaction. In general, tenants are still feeling positive, with 87.4 percent of tenants. That’s down very slightly from 87.9 percent and indicates “good” or “excellent” satisfaction overall.

What’s more, nearly 39.9 percent of tenant companies anticipate increased headcount within the next year – the highest proportion observed since the first quarter of 2011 and an indication of potential job growth. Businesses in Chicago, Dallas and Miami, in particular, appear far more optimistic about employment growth than they did a year ago.

Now that you have a lay of the land, in the next installment we’ll get into tenant retention strategies. Stay tuned.

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