As revealed in our Q4 2012 Office Industry Trends analysis, office tenants reached new heights of satisfaction in 2012. The trend, though, is not limited to a single property type. Indeed, it has been happening across the entire commercial real estate industry, encompassing industrial, retail and medical office properties as well as traditional office buildings.
The chart below shows the four-year trend for overall satisfaction for the four property types tracked by Kingsley Associates. Though the trend patterns differ somewhat, tenant responses were more positive in 2012 than in any of the previous three years. And in fact, the same holds true for several other metrics, including satisfaction with property management, value for amount paid and renewal intent.
Overall Satisfaction Trend for Commercial Property Types
When it comes to tenant expectations of future space needs, however, there are some differences across property types. The percentage of retail and medical office tenants anticipating more space has remained fairly stable since 2009. And while more office tenants are expecting to grow than in 2009 or 2010, the proportion is virtually unchanged from 2011. On the other hand, the expectations of industrial tenants have moved up and down a great deal. As of the end of 2012, nearly 20% of industrial tenants are anticipating more space, by far the highest among the four property types.
Future Space Needs Trend
For a more detailed look at these trends, check out our Q4 2012 Commercial Property Trends.
It isn’t hard to accept that survey research is a good way to measure and benchmark customer satisfaction. Customers, after all, have every reason to rate their experiences accurately, whether good (so they can spread the good news) or bad (so they can reap the benefits of hoped-for improvements). But are they similarly transparent about their future rental behavior? Specifically, when apartment residents answer questions about intent to renew, how predictive is that, really?
To investigate this, we took a detailed look at a very large, multi-market portfolio of apartment communities. Having been supplied with the actual renewal rate at every community for the year 2012, we then compared the figures (at the market level) to the renewal intent reported at those same communities on surveys taken during the same period.
The results appear in the graphic below. In markets where survey responses indicated relatively high intent to renew among residents, the actual renewal rate also tended to be higher. And when renewal intent was lower, so was renewal behavior. The relationship is not perfect, but, as the chart indicates, it is meaningful. Survey responses are, in the aggregate, reasonable predictors of lease renewal.
Comparison of stated renewal intent and actual renewal rate
Our survey results represent over 1 billion square feet of office space and an equally large amount of multifamily space (approximately 1.5 million apartment units), making our database the largest repository of customer service benchmarks available to the real estate industry. In Q3, we noted the following:
- Tenant satisfaction and renewal intent are hovering near 3-year highs
- Tenants are more loyal than they were a year ago in most (but not all) major US markets
- Tenant interest in green building practices may be beginning to rebound after a prolonged slide
- Click here for the full press release an office trends data set
For more than a year, overall resident satisfaction has remained within a very tight range. Could a similar equilibrium be developing in resident renewal intent? As we have been reporting in our quarterly press releases, the percentage of apartment renters indicating they “probably” or “definitely” would renew their leases has been declining steadily since the middle of 2010. But in Q2, this proportion held steady at 58.5 percent. Is this a momentary blip or the start of a new trend?
For more information on trends from last quarter’s resident surveys, click here or on the chart below.
For the first time in over 2 years, the percentage of office tenants saying that green building practices are “important” or “very important” to them registered an increase during the most recent quarter. Still, the proportion remains below where it was 12 months ago in most major markets, and anecdotal evidence suggests that tenants are especially interested in green retrofits that will lower their operating expenses.
For more, click here or on the graph below for our office industry trends from Q2 2012.
It’s no secret that apartment owners and managers have been increasing rents during the past 2 years. Not surprisingly, our resident survey data shows a corresponding decline in residents’ perception of the value they receive for the amount they pay in rent. But this decline is not uniform. As the chart below reveals, the average perception of value has fallen 0.07 points (2.0%) since 2010 at Class A and 0.08 points (2.3%) at Class B communities. By contrast, Class C communities have observed an average decline of 0.15 points (4.4%). The rising rent tide has thus impacted residents at Class C communities – whose alternatives are more limited – the hardest.
At BOMA’s recent Annual Convention in Seattle, Kingsley Associates’ Phil Mobley participated in an experimental new presentation called J.O.L.T. (Just Opportunities to Learn and Think). In this format, presenters speak for 5 minutes on a topic while slides advance automatically every 15 seconds. Thus, there’s a lot of information condensed into a very short amount of time. Check out the audio-visual presentation below to hear Phil’s presentation entitled “What are Tenants Thinking?”
The top rental decision priorities for residents of multifamily communities are intuitive: location, overall quality, floor plan and, of course, rental rate. Our research has shown very consistently that these are priorities for at least 80% of multifamily residents. Moreover, this holds true across various resident demographics, such as age, gender, income and living arrangement. (See this post from about a year ago for more.)
Two additional factors have created a lot of buzz recently: sustainable or “green” building practices and online ratings/reviews. The chart below shows the percentage of residents in various income categories who place “high” or “very high” priority on these two factors. The general trend is that residents with higher incomes place lower priority on both online reviews and green building practices (though it is true that middle-income residents are somewhat more likely to prioritize online reviews than residents earning less than $25,000 annually).
A resident’s age group has an even more pronounced impact on the priority of these factors. Half of residents under 25 place high priority on online reviews, while just under a third of those over 65 do the same. Also of note is that older residents are much more likely than younger ones to indicate that green building practices are a priority for them.
While these two decision factors don’t have quite the impact as others in the absolute, they are notable for how differently they are perceived by different demographic groups – which make them important differentiators.
The prospect of owning a home has always factored into the timing of multifamily residents departing their communities. But in the past few years, there has been a steady decline in the percentage of residents likely to vacate who say that home purchase is a determining factor. As seen in the chart below, almost 1 in 5 vacating residents (those saying they are unlikely to renew) cited “home purchase” as a factor in 2007. In both 2010 and 2011, however, that ratio fell to less than 1 in 8.
Of note is that the trend did stabilize in 2011. Will more residents be willing and able to jump (back?) into the ownership market in 2012 and beyond? Historically low interest rates and continued attractive pricing might suggest so. Or will tighter requirements for down payments and continued employment and economic uncertainty continue to encourage renting by choice?
Kingsley Associates tracks national and market trends in office tenant perceptions each quarter. This quarter’s results show that tenant loyalty – as measured by the percentage of tenants who told us they “probably” or “definitely” would renew their lease – is at its highest point in the last 3 years (see the chart below).
This quarter’s results reveal some interesting differences across markets as well:
- Atlanta office tenants are the most optimistic about hiring additional people and needing more space.
- Nowhere in America are office tenants less interested in environmentally sustainable building practices than in Dallas.
- San Francisco exceeds the national average in tenant satisfaction, loyalty and economic outlook.
- In New York, tenant satisfaction and loyalty dipped during Q4.
- Tenants in Chicago are among the happiest, most loyal and most optimistic in the nation.
- Interest in environmentally sustainable building practices fell sharply in Denver throughout 2011.
The full press release is available on our Website here. To download the data itself (in PDF format), click here.