Relocation process:What services do tenants need?

Work in progress

Miikka Putto

Aalto University

Real Estate Business

Content

Background

Aim & methodology

Preliminary findings

Discussion

Further research

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Background

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Background: why study relocation?

Office occupiers’ relocation decisions have an impact on

• On all actors within the built environment and society at large

• On the relocating organization itself– Organisation– Individuals

Understanding where and how organizations relocate is important!

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What is relocation?

Optimal location- Neo-classical approach- Behavioral approach- Institutional approach

Process focused

- Organizations are comprised of people

- Decisions are made - and affected – by people

Relocation is “a change of address of a firm from location A to location B” (Pellenbarg et al. 2002)

-> Organisation’s address changed from A to B-> Office occupiers, short and medium distance

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Previous research, examples*1: Pellenbarg, P.H. & Wissen, L.J.G. van & Dijk, J. van, (2002). "Firm relocation: state of the art and research prospects,“ Research Report 02D31, University of Groningen, Research Institute SOM. *2 Greenhalgh P. (2008) ‘An examination of business occupier decision making: distinguishing small and large firm behaviour’, Journal of Property Research, 25(2) 107-126

*3 Rasila, H.M., Nenonen,S. (2008) "Intra-firm decision-maker perceptions of relocation risks", Journal of Corporate Real Estate, Vol. 10 Iss: 4, pp.262 – 272

*4 Rothe, Peggie; Sarasoja, Anna-Liisa (2012) Power or activity? Roles of individuals in relocation processes. Joint CIB W070, W092 and TG72 International Conference, Cape Town, South Africa, 23.-25.1.2012

Firm relocation: state of the art and research prospects *1

An examination of business occupier decision making: distinguishing small and large firm behaviour *2

Intra-firm decision-maker perceptions of relocation risks *3

Power or activity? Roles of individuals in relocation processes *4

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Risks

Relocation includes several risks

• financial risks

• functional risks

• corporate culture risks

• interest group risks

• future risks.

(Rasila & Nenonen 2008)

On the employee level:• increased absenteeism• substantial reductions in

productivity• low morale and a poor attitude

toward the company that may persist for months and years

• an increase in work errors• the loss of experienced,

hardworking people • even attempts to sabotage the

move.

(Attwood 1996)

Relocations in Finland

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The Finnish context: what do tenants think they need?

Tarvittavien tilojen määrän ja ominaisuuksien määrittelyssä

Työympäristön tarvittavien toiminnallisuuksien määrittelyssä

Tarjolla olevien tilavaihtoehtojen kartoittamisessa

Vaihtoehtojen arvottamisessa ja valinnassa

Sopimusjuridiikan ja sopimuskäytäntöjen ymmärtämisessä

Vuokrasopimusneuvotteluissa

Muuton käytännön asioiden järjestelyissä

Muutoksen läpiviennissä henkilöstön kanssa

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Service needs in relocations, Finland (n=136) (Prefe project 2009)

Käytämme Emme ole käyttäneet, mutta olisi tarvetta

Ei ole tarvetta En osaa sanoa

Change management

Taking care of practical arrangements

Lease agreement negotiation

Legal advice

Comparison & Selection of option

Searching potential premises

Determining work environment criteria

Space requirement analysis

Have used; Have not used but a need exist; No need; Can not say

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Tenant representation

• Commercial tenant representation• Occupier representation• Relocation management• Relocation services• Leasing advisory services

Tenant representation

Characteristic• Service provider (consultant) offers services related to relocation process, often

searching suitable premises and negotiating lease conditions.• Other services might be included• Principal is tenant• Implicit characteristic is the relationship between tenant (as a client) and a

consultant. Consultant have to represent exclusively the client.• Earning logic varies: fee can be paid by the tenant or by the landlord

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Tenrep market in Finland

The majority of lease negotiations is done without Tenrep consultant

- Some markets even 80…95% might use consultant

Typical client for Tenrep consultant

- Large, international company

- Sensitive for economic fluctuations

- Centralised CREM

- Consultant company

- Brand orienteed companies

Company background that used Tenrep services 2010 in Finland

International (69%)Domestic (31%)

TenRep association

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Ounasvuori 2012

Triggers to hire a Tenrep consultant

- Expiring lease contract- Organisational changes- Business expansions / cut downs- Hurry- Premises have to support special functionalities- Lack of supply (specific requirements)

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Research aim and methodology

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Research aim

• To understand the nature of relocation processes• To understand challenges that tenants come across• To identify service needs

• What kind of relocation processes do tenants have?• What challenges do tenants come across?• What services should be developed?

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Research methodology• Multiple case study

• Semi-structured interviews

Landlord interviews

Tenant rep consultant interviews

Tenant interviews

Describe practices, Identify challengesDevelop service concept related to relocations

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Preliminary findings

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Challenges that organizations come across Tenant interviews:

- Signifigant time is spent on the process

- Relocation project management is hard to handle

- Often employees were not involved to process

- The emphasize of communication was in the later phases

• Suprisingly the respondents (at least so far) did not considered that advice in lease negotiation would have been be beneficial

• Tenants are interested about real estate services but pay willingness is low

• Some of the respondents indicated that external advice would have been beneficial

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Added value – consultant experiences

• Savings

• Tenrep consultant is able to negotiate better lease conditions

• Time spend

• In-house knowledge does not exist

• No need to waste time to long lists

• Consultant knows the real estate market

• Professionalism

• Professionalism

• Possibility to concentrate only to essential issues

• Tacit knowledge

• Consultant can find all alternatives – access to silent market information

• Tenants benefits are continuously guaranteed

• Special knowledge available (taxation eq.)

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Discussion

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Discussion

• More emphasize to relocations is needed– Awareness– Relocation should be seen as an investment not a cost

• In-house versus outsourcing

• Tenants are interested in real estate services but willingness to pay is low

• Should landlord integrate some services to their budgets? • For example, technology parks are offering already wide range of

services. Could they built up a business concept to support potential tenants to move in?

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Possible benefits for the real estate industry• Space providers

– To understand relocation processes-> Supply side of the market develops

-> Letting process more effective

• User organisations– Perceive understanding of all aspects of relocation– Less risky relocation process– More efficient relocation process– Take financial, social and environmental aspects better into

account

• Service providers and consultants– To identify service need and develop services

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Summary and further research

Relocations

• Significant impact

• Organisations confront challenges

• Finnish market is undeveloped, business potential exists

• In order to understand location decisions, the relocation process needs to be investigated further

Current study continues, so far challenges have been recognised.

Next step is to understand office occupiers’ service needs

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Thank you!

Miikka Puttomiikka.putto@aalto.fi

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