In Search of a Differential Advantage The Marketing of ComfortForeword Flan septs ofthe realestate market are changing. Abundant financing fee ented in meet markets becoming vertu. The supp of offes pice evelale fleas 848 times the 1964 absorption of spore — anc 15d wes record year, The vacancy rit lsarooord 164% and cimbing at the beginning of hs year, Withtho gut of eatabe space, martin to tonant prospectshas becom thecal facortothe sect sucees ofa rol exo investment. Dvel now dependent on thelr byt poston, packaga and promote sto prospeatve tenant, Consequerty, fe most important Tetons inthe design and constuction of buling are those that Impact Tease pond renewal ates, Foremost onthe dvalopr’s mind is, "How {gulcy wil the balding be essed enaunder what tes anc conditions ‘As in any marketing and sala process, being customer civen is fund ‘onal be efloctve,oleuing agent neede a product at meotstheneed ‘rine meet Moraover, he or ae would prfer one that en be fer Sine tom its competition, But what do torants want and why do they ‘ove? Andon whet beiscononebusing be iferentated rom theres? Purpose “Trepurpose ofthis poporiatohalpanewerthese questions ann parton Tost expore the value ofthe bulding'scorfor system as a soures of i {rentoton.Cantne comfort stom, froquertly taken or granted bused to gelncompettive eavantagein esl etts? Can tbe usd a 00 13 tra orretan tenants ls theres naneil retin to the developer forma Keting«bulsing's comtorlavel? Methodology orc emajor netopaltan grt markt ache Sunbelt Much ofthe [nformetion in this paper ie goeraphicaly specie, bu suggest tore fect the natlonal marie More than 100 tents pareipated inte study {rough fue groupe, qvenionneires and indepth interviews, The resus provented inthis pope let he tenant input In conducting the resarch, The Tone Company was asisted by an inde ppondontconaulting firm The Strategy Resourea Grup, ne. The esl of {he sud ro olioved tobe sttieteny valid fr the conclsions drawn. ‘Wher te population ate a bean redcod (fr example 10 only those {anansfelocong Inthe next 12 months tho vay ofthe response was theckodagoinst the entire sample as Whoa In tis wy, securacy Was setred Trane also surveyed leasing agents and property manage inthe same marie Input or these parte fe elled oat a such nthe body ofthis >Executive Summary istariel realestate lases hava been sold onthe bess of locaton lo- Srcundings, rice mhigsdaadeaeriin a 8 peer notrven by comfortssues, tay canbe signican More special tie reeearoh incites that 1. Comforssue do infuoncoa tenant's dacsion to sty or leave, anton ‘Sts do perceive diferences in comfort level in new bulllngs 2. Tareis an opportunity ofertas building by marking comfort Caive se more comfortable. 4, Marois ansttroctivefinancil crn tenant prospects tumtothe developer he methating of Sines rleation declsons ar nflusncod by the tnan’s perception of ‘comfort tppenrthat the bling's environmontstayatem canbe edo ‘Sevelopcompettive advantage. Seid sncther way, parhape the Geveoper Should eanalar locaton, product, quality end service when Martetng ¢ Building, And, with vacany rte running a historia high the timing may be pero for his en. Other Resources Tho ane restarch offors have been complemented by a BOMA national {er of 1985, A summary of tal findings Is avalable now ata cost of $50 naire answered by over 1800 tenans, BOMA conduct a meticulous ‘TRoBOMA study identifies hath tive building” ttl abuleingthatfunctensthe way heer shevas| pereturecortval energy ficiency witnoutdscomfon, good ar qual and ceptable notes lave To quote the survey "yur bulcings happen Beateng on temparsture contol tis could confer @petculely potent ompotiive seventy” BOMAS finsings ore occassionally referenced inthe body of his paperThe Quantitative Findings Why Do Tenants Move? 9 ‘move. Tey do ony wien they perosvenecanary. About one n fv Sroplanningtorloetain the nese ts've month (The BOMB survey nd catstathy parc afltananstnthay oi move winters ‘Te tenant inthe ane survey te numerous resson or moving Inckid nthe ness mover anew cation whereclonsor ether importante lntionhips ext. The prinspal eason for moving, however, i that thle currentspece simply dosart work any longer. Thay have cutgrown rit has Bosom too large ae thoy consolidated Thi tre for approximately 65% ofthe tananta planning to relocate, The scond most popular raeson to relocteis more atactve les terms and cost, Ths groupoftonantsisswert of tai featba dal oogoodto resist Movingto nen spac eeshionable, ondmeny pereveitaemoving Upinthe world. Ths group oftenants does see themselves sormuch ae ‘moving onto someting beter, “ Principal reasons for leaving Planing to rooeato ‘nants planing 0 reocete) ene ee eens preeere »Betoreevaiuating the inven of confor an thee son, the term comfort needs to be dened Comfort means many things tothe tenant population. means gd er poteturecontolandelr quay cbanlinea, seen of salty, clvatos that tore ey acose to oo workers, pleasant surroundings, fw aoe levels 2p atractve view, convenient parking, «ood localion and desable Interestingly, dlecomfor. o bing uncomfortable snot the opposite of como. Tenants are very tikly to equate ciscomfor with th aruiror. ‘manta syst. Infactcecomfor i ight eorelatd tothe HVAC system, Sevany percent a the tanans planning fo reloete named poor tm Datu contol a tho eabon paopleare uncomfortable ina ofc il Ing: 30% of those relocating named poor temperate cont exusvaly {i pine soar sativa sen ng raven te ‘ost frequent complain they reseve) ‘The eador should note thot temperature contrat has os much nfuenoe on tnetenant confor ovl a thle physical surroundings, snd sgnicany ‘mors todo with ther level of aieartor. ‘When people are uncomfortabs When » person i comfortable in a modern they sre generally ‘ce balding, hese experiences Uncomfortable Benue Tenants panning to relocate) Menants planning to relocate) Extcopat een neers i i tse comsose Seg an cee a, Steere Seen sare reow Do Tnants Rate Tir Comfort Ln . ‘Grave no retuning synthe ng tet oval eamfor )) tec neterge ewes was Bt hose plomngamaveraetner sm {eratlones suc ow The everoe sere Since comfortisammuit-cmensonsl concept, tenants were also askoahow ‘Foauenty they experienced carton singe i Uy eorelted tana trvionmontal system, “Tototel population oftenants surveyed generally xperencoitediscom fortin thai pace, Of he total sample, asary 70% betaved people are ‘arely comfortable snd las than 10% ft that people ae requontly ‘Uncomorabi, (na seal of 11, how would you rate the tverll comforablness of your offee People are uncomfortable in your office {at tenants) (Al tants) ‘Tenants planning to stay in thel Tenants planning to stay in Peeper meer coy Pear eee o ry (eerie lw fan between 010 High Response (na sal of 110, how would you rate the ‘verll comfortableness of your oe ‘People are uncomfortable in your ace Tanants panning to rloca ‘nants planing to relocate) ‘Tenants planning to relocate patient oy ene poe one Meek (erent) ort 24507 800 Maraiy"ecasonalyFroquenty i) < y)«nt pitue. onan plonning to relocate bave tet poop inthe space re genaaily mare ureurfortble, potentially aang fel othe flames ‘hair elocaton decision Nasty 70% of th population then rated thelr an ‘ronment aa “ocesionally uncorfotsle” nd 20% fo thet a wos fe > Ecce ee Does Comfort Level nflusnee Relocation Decisions? ‘We've soon that onan planning to reloete are ess comfortable than those that stay. But dose comfort Infuane reloston decisions? Dace Impoctthetonent decision to leve, and does influence the selection of [Altnough the markets not recty dive by comfort issues, decisions to "Ray or move are nfuoraed by tenant pecaptions of confor. Diss {ation contributes otheimpulseto eave os oe slockofresponceta “ea problems tog wermor"oa cold whichareprimasy caused by theo ‘ronmental system, ‘onan planning to relocate ar inluencedby their perspective of internal climate and comfort In deicng to stay lave, about ane in six believes ‘hat climates avery impetant consiceaton, and just nder one haf be Tove i's ethar a somaunat or very imparantconsisertion ‘comfortintenal climate considerations Tenants planning to relocate) Just under one half of relocating Feeney eperen enh as Saeeeeneerseionpeae root‘eCohasuvycarshrt hi tt thse in Birtetmaniors eaccoren on tbe on swat eaters Setar lati ings tae monte Bowe, Bihari xara tomy fete ntrennek Ret mn sano were mre an Comforlssues impact the selection of anew building 2 well Grantod the ‘Seoreh forte bullaing”fenora sere for acorforble environment ‘ised bythe buiing sell Whe choosing abun, comforimay note Smojorconsieration bute nat trivial ether Over (ona scaleof 04 vnthsbeing very important eaveragelmporanesi¢34, Approximately eat of 10 tense inn that internal climate considerations are very For those nants pinning to relocate, climate considerations become ren mere importa au they Become sonetized to earmfort during tei ‘ocsions to Teave Tha evorage response 39 0n a scale of fo 4 and Soat 9 out of 10 think fe somewhat or very important i In choosing new building, comfort In choosing a new butting, comfort Internal clmate considerations ae {intemal climate consiratons are {al tenants) (Tenants planing to relocate) | on Cou oeer ere acne et epee aeons) eet) papery (Average answer: 3.4) Average answer 3.9) lI ®\Wecanacethattonens donot vastcomfortevasightyInaloceton ded “Tenants do batevelt’fssibleto design andequip modern offesbuldings to achieve comfort inthe space and tha! there are signin eleroncoe ‘om bling to building. Neary 90% agreed that i fesse to deelgn $d equip modern ofcebulings to be canfortable, and neal 5% be love tha there ae ferences among bulcinge. tee feasible o design and equip a modern offer bldg 0 that confor is asured to tenants (onants planing to relocate) See pare errr hs baie ae prereset n peeerniieets ener y g “Thereador maybe helped some qualiativeinformation stthipont. All ara vet quotations from tenant “Mest bulsings ee underdone in terms of sir contoning. There's defintely a ference in comfort levels fm building to bul Ing. wevehad somevea problems. mostyhest an ar probleme “camo tevel do iter from bling to buling. leo in varous parts ‘ofthebullaing.Thisisanal glace buldingandlaidntwanttobeontho heavy sun sae “Ye, thre ference, tm sensitive tothe comfort thing, but Fm ‘warmarthan mestater peopl. Alot of places go nto moo warm, ‘re nat happy with this interview room were ung right nove fs warmer han our eter oes. Whan we Interview here, wespend 102 Fourewith aomeene, and there's been mes whon the guys have bean “W’simportantokaep our poople hoppy. They hove tobe comfortable ‘ut ntl ena fl thie way, of course “think al buldings are the same.” th regards tothe confrtsyatern) 9Wil Tenants Pay For Bottor Comfort? Tenants were also asked they would payto obtain amore comfortable en vironment, more spestealy» better envranmantl syst. They wore ‘io eaked torte the vaso of better environmental ester, one tet tnoule provide goodcamtortievelsetall mes, Thanthey werenskes thoy ‘ere wing to pay fre “nants ata tha vlus highly (an average of7 on a acle of 10) an nosy 60% of those planning to relocate were wiling to peyo obtain (on a sale of 110, how would you rate the ‘alle ofan environmental system that provided ‘otieably better comfort levele (nants planing to velocate) ‘Would you be wiling to pay adtonal rent to tain x more comfortable environment Tenants planing to relocate) eee sesee tr! ‘Most tenants (eee) pester! Low Rank between 1410 Hh What Is The Financial Value To The Developer? There Is fnanca wae inthe maratng of comfort the develope. For Snpticy,comlaer the value of ading only one ineremental tanto a haw bldg trough an uporsded environmental syst that's property ‘marketed to tenant prospects 100,000 sq ofce building STB wile net ease 2ai one 5000 a tenant Upgraded eyter cost S055 Bulging financed with 7yeariterest-only loan at 11% BUILDING PRO FORMA ‘sre ven 1 2 a Incremental Rent 07 © 0757s Incremental Net Operating Income 7507878 Incremental Debt Sevce (os, (008 (008) »)ach Inoreental tenant wil ed $226,000 1a the bulings net operating insomeand’s207,000:0cashiowin athreayoar eri. Thefinaneta tum Ieparcalany atectve sinc the bling’s comfort system must be pu hasedand meintalnedinany avert. Tb bafnancilly conservative, theax Smple assumes en upgreded system) “The nereasein rental income transines rectly obuling value ae well Since bulngs are sold abo multiply of thar net operating income, the ‘ofthe incremental nants. With ¢ CAP ate of 10%, theinerementa tenant ‘ade 7.508 and $750,000 to the sale price of i building “This example was one of incremental volums, The marketing of carnfort hasbothvolumeandir margin implications The nasi ofineresing owl rats in exiing bulangs for martin comfort would be sim wy Hasn't Someone Taken Advantage Of This Opportunity? Comfort isis are esely understood by tenants cnsigeing @ ave — ‘ther they aro” ae natcorfortele hus, comfort ieauestooadly va: Sted as nputto thir relocaton deilons Comfort eaves ashen tune dersendin a new unfamiliar bulling however Aithouh tenants balieve ‘eroare difrenea in new brings, tay do natkrow what questions 4okf to leesing agents The question they 0 ok ara goeral forthe "tis 2 yeortound system?” “During what hours a condoning avalale?” ‘The tense ack of knowledge het it understandabie. He or she oasos pace only once every ton yors fon average) ana thoes ee education vd%0 acon Conditioning eyteme are often hardware jargon which not understood bythe tenet or leasing people Selors also help keap comfort idan issue. As was done with wulding ‘manages, rane intenrwod Testing sgent a well = tena, Most. Spents donot attempt to educste the buyer regarding comfort. Some be- Tavathoy don't know how, some bashes they bllove it would bee dea ‘Yaningstodoro, Agents who dohaves beter Geelgnac orton syst Unable to expat eseingflly. They foal erable to dforentate good, best and wore, "ou nak questions shout te sr conitioning and it depends on who you ao taling to and whether you know enough about to know if Youre getting 3 good snewer”™ "We did ack about ar contionng and we were od hat the system is fine Franky, we've been dnappoinid in the at condoning. gots prot warm in the summer Inu main conference room the ystems Inadequate” "We aa to leasing agent in three diferent builings.” Everybody tals about energy sri stuf ka that..(th confor system). But Sey on ay muchConclusions “Thetenan’s perception comfort doeshaveanimpacton location del. lone, infuance he tanant’s dedsion o stay r fava, ang inusnaos Fivorherchoic of anew tung, Themajoiyoftenantsdo babavethatit Ispessiiste design comforable space andthattharesreliferences inthe ‘biltyofbuleinge to detvercamforc Many tenants rewllingtopsy ada tlona ret to achive bette comfort. Consoqverty the marketing of eon fortconte trenetesintaanatactvefinacll ern forthe cevelope ny {ressing volume andor margine. Ading just one ineomenta ona ‘olued at $0.75, ‘Athoughthereisboth aneod and financial return, few developerstodste fave taken advetage of is oppertunty.Cansoquenty, enhanced com fortean be eed os 8 source of iferentision, ado @ way to gln com pothive advantage “The covelopar can profit by marketing corto in several ways. iret be cause confor influences dadstons to stay nor leave an exiting bulding ‘Sevelopere can inereac renewal fates by eadrssing corfort seuss. ‘Seacerthataretoowarmortoa ool aretherumberane compat inex ting bulcinge. Greater phasis onthe msintonanes and serve of existing camfor sys- terns, dane! teining for bulng operons personnal and more a {ention to original eyetam design for new faites recomended to. ‘Secondly the tenant’ negative experience in existing balding can be ppd lease up newspace Many have bath vvidandreesnt omovies: “ha si conditioning doe’ seer to matter much before the decision, butitsur matters ater Wehave the guy up hereatleast once amonth tolcheck he temperature and stil es uous To9 hot 2 us $7500 for supplemental air eonditioning, and | hik our am had been propery designed we wouldh't have needed it Many tenants perceive ferences, but do net understand thom. A perception of differences coor between buleinga il tend to make ‘Comfort bes bigger lnsing eve Here are some samp comments om “This dscusion’s boon hep be able o ak question | hadnt thought bore as result fi" “wih hed known that” "would do it ferent next time” tlarecommendadtatthedevelopar consider marketing loaton product, {uelityand service endinsude the merketing of comforts eninogrl pet {ths meresting pan, Testimonials, sale Moature, marketing cate dlomonsrations, comfort awarcs for the bullng, publ, raining for teasing agent eto can all sonribte tothe image ofa eamvortabe busing Marating comforts notfor overyone, however: fe best with customer driven trmethat lace an emphasis on valve 'sforthoss nevi with {heenergy and daring tty new dese. forthainnovatrsyousce oppor tunity inthis concep, perheps You should ebk youre: “tbat ype of environmental system should my bulding have, end how an use tte my adventapo? oQo Ta Grose, Wr 54601-7809 ronannomedsis ‘The Trane Company Commercial Systems Group