Landlords should Brand Early to Avoid Downturn Risk – Cultivating Management Talent Critical for Future
September 16, 2014, Beijing – CBRE today launches its Leasing Asian Supertalls: Strategies for Success special report. The report examines factors such as anchor tenants and their importance in making supertall buildings a success, as well as strategies landlords should look to employ to achieve occupancy and rental goals. The report follows on from CBRE’s July research report The Emergence of Asia Supertalls which found that whilst development of tall office buildings in Asia began relatively recently, Asia is now home to 55% of the total number of tall office buildings globally. The rapid emergence of supertalls in Asia means it is critical for landlords to properly understand how to approach securing tenants in a competitive environment.
CBRE’s latest report outlines five key steps to successfully leasing a supertall building:
Getting it Right—Five Key Steps to Success
Step 1) Begin branding and marketing in the design stage. This can shorten leasing time by 40%.
Step 2) Start pre-leasing during the construction stage. Aiming to secure anchor tenants 12-36 months before completion.
Step 3) Drive towards 50% occupancy as quickly as possible. This helps put landlords in a stronger position for negotiating at target rental levels.
Step 4) Execute a tactical strategy to offset early bird discounts.
Step 5) Landlords should aim to lead their markets and strive for a 10% rental premium.
Importance of Anchor Tenants and Leasing Milestones
CBRE’s latest report finds that for a supertall building to succeed it requires one or more anchor tenants. “It’s vital that supertall buildings secure an anchor tenant early. Partly, this is because anchor tenants are large space users, but moreover anchor tenants are crucial for owners of supertalls in that they bring immediate credibility to the building and establish its reputation. Anchor tenants can de-risk a project, kickstart rents, provide momentum to the leasing campaign and help increase occupancy,” said Nigel Smith, Managing Director of Office Agency Services, Asia.
“Typically, building owners look to a commitment rate of 30% as the first milestone in any marketing and leasing campaign, but for supertalls landlords need to look towards achieving a 50% commitment rate as the first milestone—in order to bring momentum to the marketing and leasing campaign. To achieve this, our research has shown that new supertalls should begin pre-leasing to significant anchor tenants at least two years ahead of completion, when the pre-leasing period typically commences for all office types, irrespective of height or size,” said Mr Smith.
CBRE’s report underlines that offering attractive leasing terms and rental packages to secure anchor tenants is essential, for example with “early bird discounts” 12-36 months ahead of completion, to help ensure that occupancy reaches the all-important 50% mark, which is when a supertall begins to gain marketing traction.
“CBRE’s experience shows that the strategy of securing tenants early can create a ‘tennis ball bounce’ immediately after the significant anchor tenant is secured, which then puts landlords in a stronger position. Once occupancy reaches 50%, landlords can gradually increase rents to their fully leased level as they are under less pressure to fill up space. However because of the time it takes a supertall to reach near full occupancy, there is a greater risk of a change in market sentiment, which in turn could affect the pace of rental increases,” said Jonathan Hsu, Director at CBRE Research, Asia Pacific.
“As most development in Asia is speculative, landlords often find their buildings become exposed to the risk of enduring low occupancy, especially during a market downturn. We therefore also advise landlords of supertall office buildings to begin branding as early as possible, preferably at the design stage so that they are able to commence marketing to anchor tenants during the construction phase. This approach will greatly improve the likelihood of securing an ‘early bird’ or significant anchor tenant,” Mr Hsu added.
The Future of Supertalls: Increasing Mixed-use Makes Talent Critical
In the coming years, occupiers’ space requirements and the way they work and utilize space and technology will continue to change. Developers will need to adapt by upgrading the technical specifications of their existing buildings and refining the design of new buildings to meet occupiers’ expectations. Supertall buildings are also expected to move towards becoming more mixed-use in the coming years as occupiers demand a more comprehensive service offering.
“More supertalls will include ‘vertical communities’ which integrate work areas with retail, hospitality, residential and leisure facilities in order to enrich the experience of occupiers and other users, with the ultimate aim of enhancing the image and prestige of the building. The successful delivery of such components will ultimately rest on excellence in property management and the facilities that come with it,” noted Andy To, Executive Director, Asset Services, CBRE China.
“The management of supertall buildings is still a completely new field for China and other countries in Asia, and as a result technology and talent are currently two big challenges facing owners of such projects. With buildings being built in China ever more rapidly—it takes less than a year now to construct 100 meters of vertical building height—the rate of new building outpaces the ability to cultivate and train property management talent. At the same time, the trend towards mixed-use projects will put ever-higher demands on planners, managers and operators. Cultivating talent to manage supertall buildings will therefore be key for the successful operation and management of these properties in the future,” said Mr To.
Case Study—China World Tower
One example of a successful leasing strategy is China World Tower III, a 330-meter, 74-storey office building in Beijing, China, developed and owned by China World Trade Centre, Co., Ltd. China World Tower III was able to attract a number of multinational companies as anchor tenants by virtue of its high profile branding and image; the landlord’s long and established track records in developing office buildings; and its extensive amenities—providing a comprehensive offering to tenants.
Other key draws included the building’s location; the quality of property management; the good views from upper floors and attractive rental terms. Timing was also a key factor for multinational companies at the time they pre-committed to the project, as Beijing has been undersupplied with quality office space in core locations since late 2008, with the building completed in 2010.
For domestic tenants—which collectively occupy around 50% of the building—prestige is the major attraction. Local occupiers in China generally have a stronger focus on the stature of the building and prefer to lease space on high floors. In comparison, the reputation and track record of the landlord is much higher up on the list of requirements for multinationals.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
