Why Tenant Retention Matters

Anthony A. Luna • August 31, 2024

The true cost of losing tenants

In property management, the value of tenant retention goes beyond filling spaces—it's about creating lasting relationships that benefit both the tenant and the property owner. As someone who’s deeply invested in building thriving communities, I know that keeping tenants happy and renewing their leases isn’t just good business—it’s essential for long-term success. Losing a tenant isn’t just a vacancy; it’s a ripple effect of costs and challenges that can significantly impact your investment.


The Financial Impact of Losing a Tenant

When a tenant chooses not to renew their lease, the immediate concern is the loss of rental income. But the true cost of losing a tenant reaches far deeper. Let’s break down what this really means:

  1. Vacancy Loss:
    Even a short vacancy can hit hard. Picture this: A tenant leaves their space, and for three months, that unit sits empty. That’s three months of lost rent—revenue that was once dependable. For example, if a tenant was paying $40 per square foot for a 10,000-square-foot space, that’s $100,000 lost in just three months.
  2. Marketing and Advertising Costs:
    Filling that empty space isn’t just about posting a vacancy online. It’s about targeted marketing to attract the right tenants. On average, marketing can cost around $1 per square foot, which translates to an additional $10,000 just to get the word out about the vacancy.
  3. Commission Costs:
    Leasing a new tenant often comes with higher commission rates than a simple lease renewal. For example, while renewing a lease might incur a 4% commission, signing a new tenant could cost you up to 6%. On a 7-year lease, this could mean paying $56,000 in commission alone, significantly more than if the tenant had simply renewed.
  4. Tenant Improvement (TI) Allowances:
    New tenants often expect improvements to the space—whether it’s new flooring, updated fixtures, or a complete remodel. This can cost building owners up to $50 per square foot. In comparison, renewing a lease might require a more modest $15 per square foot in improvements. That difference can add up quickly, costing an additional $350,000 or more.



The True Cost of Turnover

When you add up all these factors—vacancy loss, marketing costs, commissions, and TI allowances—the cost of losing a tenant can easily exceed half a million dollars. This figure doesn’t even account for the potential loss of momentum in your building’s community or the impact on overall tenant satisfaction.


Why Tenant Retention Should Be Your Top Priority

So, how do you avoid these costs? It’s simple: focus on tenant retention. At Coastline Equity, we believe that keeping tenants satisfied is about more than just providing a space—it’s about creating an experience they value. Here’s how we do it:

  • High-Quality Service: We prioritize delivering exceptional service, from regular maintenance to timely communication. When tenants feel valued and heard, they’re more likely to stay.
  • Proactive Communication: We don’t wait for problems to arise. Regular check-ins and clear, transparent communication help us address concerns before they become reasons to leave.
  • Measuring Tenant Satisfaction: We actively seek feedback from our tenants to understand what they need and how we can improve. This ongoing dialogue ensures we’re always aligned with their expectations.


Tenant retention is about more than just avoiding vacancies—it’s about building a community where people want to stay. By focusing on delivering exceptional service, maintaining open lines of communication, and continually improving the tenant experience, you can reduce turnover and protect your investment from the high costs of losing a tenant.


If you’re ready to prioritize tenant retention and keep your property thriving, let’s talk. Contact Coastline Equity today to learn how we can help you create a community that tenants love to call home.


FAQ Section

Understanding the True Cost of Tenant Turnover and Retention

Q: What are the biggest costs associated with losing a tenant?
A: The most significant costs of losing a tenant include vacancy loss, marketing and advertising expenses, higher commission fees for new leases, and tenant improvement (TI) allowances. These costs can quickly add up, often exceeding half a million dollars, especially when considering the ripple effects on your building’s overall momentum and community.


Q: How does vacancy loss impact my property’s bottom line?
A: Vacancy loss refers to the income you lose during the period when a unit is unoccupied. Even a short vacancy can result in substantial financial loss. For example, if a tenant was paying $40 per square foot for a 10,000-square-foot space, losing three months of rent could result in $100,000 in lost revenue.


Q: Why are marketing and advertising costs higher when trying to fill a vacant unit?
A: Marketing a vacant unit requires targeted efforts to attract the right tenants, which can involve everything from online listings to professional photography and staging. These costs, averaging about $1 per square foot, are essential for ensuring your property stands out in a competitive market.


Q: What makes the commission for a new lease more expensive than for a lease renewal?
A: Commissions for new leases tend to be higher because they involve more effort from brokers to find and secure a new tenant. While renewing a lease might involve a 4% commission, signing a new tenant could cost up to 6%, leading to a significant difference in your overall expenses.


Q: What are Tenant Improvement (TI) allowances, and why are they so costly?
A: TI allowances are the costs associated with making a space suitable for a new tenant, such as renovations or upgrades. These improvements can be expensive, often reaching $50 per square foot for new leases, compared to around $15 per square foot for renewals. These costs are necessary to attract and secure tenants, but they significantly increase the cost of turnover.


Q: How can I reduce the risk of tenant turnover and its associated costs?
A: The key to reducing tenant turnover is focusing on tenant retention. This involves delivering high-quality service, maintaining proactive communication, and regularly measuring tenant satisfaction to address concerns before they escalate. By creating a positive tenant experience, you can encourage lease renewals and avoid the high costs of finding new tenants.


Q: What role does tenant satisfaction play in retention?
A: Tenant satisfaction is crucial to retention. Satisfied tenants are more likely to renew their leases, reducing the costs and disruptions associated with turnover. By providing excellent service, being responsive to tenant needs, and fostering a strong sense of community, you can keep tenants happy and encourage long-term occupancy.


Q: How does Coastline Equity help with tenant retention?
A: At Coastline Equity, we prioritize tenant retention by delivering exceptional service, maintaining open and proactive communication, and regularly seeking feedback to ensure we meet and exceed tenant expectations. Our approach focuses on creating an environment where tenants feel valued and are motivated to stay, which ultimately protects your investment.

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