The real estate industry is not immune to economic cycles, including periods of recession. After a decade of growth in the U.S. economy, could we be approaching the end of a cycle and on the verge of the next recession? If so, how can commercial property owners and operators insulate themselves from its impact?
While it is impossible for any industry to be completely recession-proof, there are steps commercial real estate owners and operators can take to make their portfolios more recession-resilient.
The cornerstone of a successful property is rent-paying occupancy that generates income. In times of economic contraction, when properties trade less frequently and at higher cap rates, the link between operating income and building value is only magnified. Simultaneously, filling vacancies with new occupants becomes more expensive and time-consuming. Thus, property owners and operators do well to prioritize retaining occupants. Operationally, this means delivering a reliable, functioning environment occupants won’t want to leave.
Tenant experience is the foundation of a building’s value. In a growing economy, plush amenity offerings grab the tenant experience headlines. But an economic downturn would force owners to think about the best ways to safeguard property values. They will need to ensure assets are operated at the highest level. Luxurious (and costly) amenities may resonate when occupiers are flush with cash, but during times of financial uncertainty, it is crucial not to neglect basic functional needs. Fulfilling those needs with minimal friction will place a building in the best position to retain occupants, and this can be achieved with the right building operations technologies.
Technology promises the ability to do more, faster and for less money. Here are the tasks property management teams must accomplish in order to safeguard their portfolios, which tech can help them execute:
Improve Operational Efficiency
Maintaining a superior operating level while also being efficient with resources is a daunting yet necessary requirement for property operators, especially during a compromised economy.
In order to keep property operations running efficiently, operators need to maximize the contribution of a building’s staff, which they can do by optimizing and automating workflows. Using a scheduling tool to understand staff and contractor availability, operators can assign and dispatch work to available individuals automatically while keeping service requestors (occupants!) in the loop in real time. Additionally, operators can use software to streamline preventative maintenance activities and inspections. The right tools also enable operators to implement a more diligent and thorough bidding process for vendors to ensure best prices and highest-quality services are being procured.
By employing multifunctional software as their operational cornerstone, property owners and operators can increase productivity on behind-the-scenes tasks. Management teams should use this extra time to add the personal touches that add value to the occupant experience.
Measure Performance More Strategically
In order to maximize management efforts, property operators must maintain a portfolio-wide view of their properties to more clearly identify and prioritize the places where their energy is needed to ensure effective operations. By equipping themselves with a comprehensive platform, they can better monitor operations at a glance, compare properties against each other and measure performance against standardized metrics.
Operators must then take these vital insights to drive operational initiatives that will ultimately improve occupants’ experience and make occupants feel like their individual needs are recognized and cared for. It’s important to have clear indicators of real-time performance and view high-level activity across the building to evaluate the health of the property, mitigate risks and present owners with actionable data on operational successes.
Communicate In Occupants’ Preferred Ways
Because communication is a fundamental component of any customer relationship, property owners and operators looking to satisfy occupant needs while striving to provide safe, reliable properties must communicate extensively with occupants in the ways the occupants prefer. More tenants now have an interest in communicating with their buildings, and their preferences for frequency and method vary widely.
In order to meet all occupants’ expectations, owners and operators must be able to facilitate a variety of communications in an organized manner. Upon entering occupants into a database, operators should identify each occupant’s preferred communication styles (e.g., text messaging) to ensure more effective information-sharing and faster completion of service needs.
Proactively Manage Leases
Property owners and operators should be constantly evaluating a building’s rollover risk to anticipate and safeguard against financial uncertainties. Some occupants may struggle during a recession to meet their lease obligations, but at the same time, the new market calculus may suggest that retaining a tenant — even at a lower rate — is more advantageous than trying to replace it. Building owners and operators can use occupant insights, such as a significant decrease in employee-base, gleaned from technology, to assess how occupants are performing and identify any needs to proactively adjust lease rates and/or length of term to manage the risk of lost rental income.
It’s also crucial for owners to effectively evaluate rentable square feet. By maximizing square footage of their spaces and keeping up with BOMA standards (the most-used measurement standard throughout major markets), property owners and operators can protect their bottom line while improving the occupant experience.
Get Ahead With Building Operations Technology
To defend property value when times are tough, owners and operators need to strategize how to optimize operations within their properties, effectively satisfying occupants and thereby securing rent roll, as well as have the tools in place for identifying risks and quickly remedying them. Putting operational technology into action gives property owners and operators a way to not only procure the insights needed to maintain and safeguard their portfolios, but also catalyze differentiation and future competitive advantage.
For some, a recession can even be an opportunity to get ahead. As competitors scramble to recover, a well-run, fully functioning property or portfolio full of satisfied occupants will be better positioned to drive rent and occupancy higher.
But there is no need to wait for a downturn to invest in technology. To reap the full benefits of optimized operations, the time to adopt is always now. For proactive building owners and operators, the value of high-functioning technology will start accruing immediately. As a bonus, their properties will become more resilient — ready to safeguard value when the economic tide recedes.