Tenant Satisfaction and Commercial Building Performance

Customer satisfaction is a leading indicator of their demand and the companies' performance, however, limited evidence research on how the satisfaction of tenant-customers of commercial offices, could contribute economic value to the building. The tenant survey provides us with the opportunity to research this question. Using the Kingsley tenant survey dataset collected from 2,965 U.S. office buildings and 55,951 corporate tenants, matched to the building characteristics data and financial performance data from the Costar database, and green certificate data from USGBC, we estimate the impact of tenant satisfaction on tenant's following leasing decision and the performance of the building. We document that 1 point higher overall satisfaction (on a scale of 1 to 5) is positively related to 8.36% higher willingness to renew the lease, 11.03% higher building recommendation, and 19.40% lower probability of actually moving out. In addition, analysis of the financial performance found that after controlling for the current period performance, 10% higher building level average overall satisfaction is related to 0.17% higher growth of gross rents, 0.66% higher growth effective gross rent, and 2.32% lower growth of vacancy rate. Besides, this beneficial effect is more significant for those tenants who have already stayed in the building for a long time, for the properties that are located in the submarkets with high occupancy rates, and for properties that have lower initial satisfaction levels. Further analysis using the mediation model documents that putting in sustainability and better property management company could improvement to tenants’ satisfaction and the performance of the building. Our research provides a shred of evidence for the financial implication of good customer relationship management in the real estate sector.