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  • Writer's pictureJason Huett

Re-Thinking Tenant Retention in CRE: A Contrarian Approach for Success

Updated: Dec 8, 2023

Hi there, fellow entrepreneurs and property investors! Welcome back to Collaborative Commercial's blog, where we break the norms and redefine success in the bustling world of commercial real estate and business brokering. We're located in Wisconsin, but this advice applies to any market.


Today, I'm here to challenge the status quo once again and dive deep into the world of tenant retention – an aspect that, in my opinion, holds the key to long-term prosperity in the commercial property market.


Now, picture this: you've invested in a prime commercial property. You've successfully inked a lease agreement, and your tenant has moved in, ready to embark on their business venture.


commercial building

However, what happens next is crucial — keeping your tenant happy and thriving within your property is far more cost-effective than constantly seeking out new ones. That's where my unconventional approach comes in.


You see, in an industry where the majority of leases are penned as NNN (Triple Net) leases, my advice might seem counterintuitive to the big commercial brokers. While NNN leases have their merits – passing on expenses like property taxes, insurance, and maintenance costs to tenants – they often disregard the nuances that truly foster tenant satisfaction and longevity.


Let's start by dissecting the pros and cons of these NNN leases.

Benefits? Absolutely. They offer a clear delineation of responsibilities, ensuring tenants bear a portion of the property's expenses. Plus, they provide landlords with predictable income and reduce the risk associated with property operational costs.


However, let's not ignore the dark side. NNN leases can disadvantage both parties. Tenants may feel burdened by unexpected variable expenses, leading to dissatisfaction and potential vacancies. Moreover, such leases might disincentivize landlords from investing in proactive property maintenance, ultimately impacting tenant satisfaction. Of particular importance, is being able to put yourself in the tenant's position. Regardless of what an inked lease states, tenants will have a negative emotional response to any type of end-of-year adjustment or invoice. Again, it's not to say that a NNN lease isn't the right option, but it's important to recognize the psychology in play.


So, how do we improve tenant retention? My approach is unconventional yet effective — I take an active role in maintaining tenant satisfaction. I cover a plethora of expenses during the first lease year, from mundane yet essential tasks like replacing light bulbs to conducting annual interior site cleanings.


Additionally, I address most minor mechanical and any pre-existing issues that could hinder the tenants' operations. If it costs under $200 or $300, I just get it done. And, my tenants love me for it.


But here's the kicker – it's not just about the expenses I cover. It's about the message it sends: "I am invested in your success." By proactively addressing these concerns, I foster an environment where tenants feel valued, heard, and supported.


currency

Now, let's talk numbers. The average cost and time it takes to find a new commercial tenant can be staggering.


On average, it can cost between $3,000 to $5,000 in marketing, not to mention new tenant improvement costs, and the months of vacancy that chip away at potential revenue streams. Investing in tenant retention strategies proves far more cost-effective in the long run.


So, beyond shouldering initial expenses, here are three additional game-changing tips to bolster tenant retention:

  1. Communication Is Key: Establish open channels of communication. Regularly check in with tenants, listen to their concerns, and swiftly address any arising issues. Show them they matter beyond their lease payments.

  2. Incentivize Long-Term Commitment: Offer incentives for longer leases. Whether it's rent abatement, upgrade allowances, or lease extensions, rewarding loyalty encourages tenants to stay put.

  3. Enhance Tenant Experience: Go beyond the basics. Organize community events, facilitate networking opportunities, or even provide amenities that enrich their business operations. A thriving environment contributes to tenant satisfaction and prolonged stays.

In conclusion, folks, redefining tenant retention in commercial real estate isn't just about the lease terms—it's about the human touch, the proactive support, and the commitment to fostering a thriving business community within your properties. Dare to be different, challenge the norms, and watch your tenants become your strongest advocates.

Until next time, stay innovative, stay disruptive, and thrive in the world of commercial real estate.

Warm regards, Jason Huett, CEO/CMO Collaborative Commercial, LLC.

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