Outcome Driven Tech: Tenant Retention

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Charlie Hamilton,

Strategic Account Director at Plentific

Real-estate has been described as a defensive asset class, counter-cyclical to equities or bonds, and generally seen as an inflation hedge. The Pandemic disrupted this narrative by turning many ‘core’ assets into liabilities. Sure, beforehand, IFRS16 continued the trend
away from 20+ year upward only leases to flexible space, but there was no foundational catalyst for change. Q1 2020 popped all illusions, with the impact still under way for anyone with highly leveraged properties or those with diminishing WAULTS. The primacy of the
tenant arrived without notice.

With an elevated risk-free rate, EPC and MEES changes that will affect 87% of office stock, and most sectors having lease events in the next five years, this will play out for the foreseeable future. In practical terms, though, what does it mean for landlords?

Covenant strength has always been critical, but ensuring solvent tenants remain in situ is more of a priority than ever (unless high turnover is an embedded strategy). Evidently, maximising net yield with a strict focus on the cost base is prudent in any circumstances. Yet no other single variable carries more risk to returns than vacancy risk and long-duration voids, putting tenants in the driving seat when it comes to lease regears. The profusion of choice and their own uncertainty about desk occupancy has turned a ‘take it or leave it’ approach into a starting point for all negotiations.

In this context, it is not possible to be an ‘absent landlord’ (not that it would be desirable to be such), even with the safest tenants. A hands-off approach that minimises contact until renewal is moving towards an open-book alignment which is still relatively novel outside of the retail sector.

For a truly successful landlord-tenant relationship, there needs to be continuous dialogue. Regardless of whether you are GP, LP, or MA, you should want to know of every interaction relating to the asset, suppliers and occupiers. Your office is the company’s ‘house’, your retail unit is their ‘face’, your warehouse is their ‘heart’, and if you are in resi, your flat is their ‘home’.

You cannot be there every day, nor would they want you to be. But they do want you to listen and this is where technology comes in. With a property orchestration system, an end-to-end audit trail can be created. Enquiries raised are tracked through to resolution and followed up with feedback. Compliance and safety documents transition away from reports to data enabling individual remedial works to be distributed to a varied supply chain. Each party obtains complete visibility through time and date stamping of every interaction.

Your tenants do not care what technology platform you use to achieve this, and nor should you. The desired outcomes are clear, and the technology exists today to enable them. A concept that has emerged from the residential-oriented Building Safety Act 2022 is that of the ‘Golden Thread’. This is the digital trail of footsteps from the moment you take possession of the asset through to the eventual sale. The empowerment of tenants both commercially and legally in the UK  has a sole trajectory. This runs in parallel with a greater imposition of individual accountability, whether as a consultant, managing agent or asset manager. Future-proofing your property and your relationships through transparency would seem to be advisable.

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