BOMA researching impact of workplace design on real estate

Real Estate Weekly, Oct 3, 2001 by Kurt Padavano

BOMA International, along with a group of industry sponsors, is launching a research project to learn how providing more effective and efficient office workspaces affects the economic performance of commercial real estate assets. Joining BOMA in this effort are SMED International, Interface, the New Buildings Institute, and Armstrong World Industries. Also assisting with a vast body of knowledge and expertise on workplace issues are the U .S. General Services Administration and Public Works General Services Canada.

Intuitively, we believe that if we provide high performance space that is flexible and sustainable, along with outstanding customer service, our operations will be more profitable. But such a relationship -- tying space and service with profitability -- has never been proven.

Following publication of the results in December 2001, BOMA International will set out to educate property owners and managers about workplace performance issues, while offering office tenants ways to improve their existing and future office space. To accomplish this, our research project will also establish a baseline of existing services, predict future growth areas, explore the effect on rental rates, building values, and tenant retention, review industry preferences for service procurement, and offer insights into the negotiation and service agreement process.

The methodologies to be used in the research project involve a number of survey techniques that will reach both our members and members' tenants. A committee of commercial real estate and telecommunications professionals and BOMA's partners will help guide preparations for the research to ensure objectivity and reliability of the process.

Among the factors to be measured are tenants' attitudes and opinions about their leases, space, and quality of service and support. Such data will be analyzed in relation to the tenant's past actions or future intentions in regard to the lease. The study will also examine such basics as the length of tenancy in current location; reasons for selecting the current lease; the likelihood of renewing the lease in the current space; and reasons for staying or not staying. Additional factors will include the exploration of the quality of space, flexibility of lease terms, cost of space per SF, quality of amenities, the overall quality of the relationship with the owner/manager, and the responsiveness and understanding of the owner/manager to tenant needs.

The need for this research is a direct result of an evolving landlord/manager and tenant relationship, which has taken on a more customer service orientation in recent years.

This shift was first recognized in 1998, when BOMA International conducted a groundbreaking study entitled "What Office Tenants Want." This study asked, for the first time, "What do tenants really want?" "What is important to them and what drives their satisfaction in the site selection process?" The study found that right after price, location, and comfort, workplace flexibility, i.e., the ability of a tenant to adapt and perform as the business environment changed, was high on tenant's satisfaction list and was growing in importance as a site/office selection criteria.

BOMA then conducted another first-of-its-kind study using research and analysis technique called "strategic mapping." This study revealed why tenants stay in their present location rather than moving on to another. Prominent among reasons given were office space environment, the flexibility and the sustainability of the space. At lease renewal time, the functionality of the space or lack thereof was a significant determing factor in the decision making process.

The marketplace has changed significantly, as well. Telecommunications and technology have come onto the scene, rapidly changing how tenants communicate, function, and organize. With the infrastructure changing nearly every six months, the importance of flexibility has become intimately linked to the tenant's bottom line. In this environment, the question of how quickly a company can change and adopt new technologies is often the difference between a profitable business and a bankruptcy.

We were also able to identify a significant opportunity cost for the real estate industry in the form of tenant improvements.

These improvements to the property, provided at the outset of a new lease, cost commercial real estate owners a staggering $30 billion on an annual basis. And if the tenant spends these dollars to create a non-functional or inflexible space, the building owner loses the investment if the tenant decides not to renew the lease, and the cycle of wasted resources starts all over again with a new tenant. In this cyclical conundrum lies a huge opportunity for the industry to develop a new real estate asset model that avoids wasted resources.

This, we hope, will form the core of its new research. Our study will determine which factors in the workplace have the greatest impact on tenant retention and satisfaction. This will allow us to develop a standard to measure the performance of commercial real estate assets, taking into account the weight each workplace factor has.