www.henley.ac.ukThursday June 25th 2015

Danielle Sanderson: School of Real Estate and Planning

Determinants of Satisfaction

amongst Occupiers of UK

Commercial Property

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• Introduction:

– Why does occupier satisfaction matter?

– A Service-Profit Cycle for Property Management

• Occupier Perceptions: Satisfaction with Service Quality

– Literature Review

– Data

– Methodology

– Results

• Behavioural Intentions: Lease-Renewal and Willingness to Recommend

• Key Findings

Determinants of Satisfaction

amongst Occupiers of UK

Commercial Property

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• Traditionally tenants were treated as a “source of upwardly mobile income” Nowadays we must recognize that “it is the tenants that are mobile and that their custom must be earned” (Edington, 1997, p.xii)

• 25-year Commercial Leases superseded by leases of little more than 5 years, with break clauses (IPD, Strutt & Parker, 2012)

• The provision of commercial property is a business, and businesses need satisfied customers in order to survive (Fornell, 2007)

• “The Tenant as Customer: Does Good Service Enhance Property Performance?” (Sanderson, 201X!)

- But what is “Good Service?”

Why does Occupier Satisfaction Matter?

Service-Profit Cycle for Commercial Property

Demand for Property

Good Service

Satisfied Occupiers

Renew Lease

Recommend Landlord

Good Reputation

• Characteristics of SERVICE include “intangibility, relative inseparability of production and consumption, and relative heterogeneity by virtue of involving the interaction of service personnel and customers, making each instance of service different” (Schneider & White, 2004, p8)

• Many researchers have attempted to assess, define and model quality in service encounters, including Kano, Grönroos and Gummesson

• Most widely used approach is SERVQUAL (Parasuraman, Zeithaml, & Berry, 1985, 1988, etc!), based upon gaps between the service expected and the service experienced

• Original model included ten determinants of service quality: Access, Communication, Competence, Courtesy, Credibility, Reliability, Responsiveness, Security, Tangibles and Understanding

• Subsequently condensed into five dimensions: ‘Tangibles’, ‘Reliability’, ‘Responsiveness’, ‘Assurance’, and ‘Empathy’

• SERVPERF is a variant of SERVQUAL which focuses on perception of performance, without the need to measure expectations (Cronin & Taylor, 1992)

Occupier Satisfaction with Service QualityLiterature Review

• Variants of SERVQUAL applied to Real Estate (mostly US Residential Brokerage)

• RESERV uses the five dimensions of SERVQUAL plus an additional two: Professionalism and Availability

• PROPERTYQUAL, designed to investigate occupier satisfaction with office buildings, uses SERVQUAL’s five dimensions plus property-specific ones: Cleanliness, Building services, Signage, Security, Parking and Building aesthetics

• Aspects of property management which “keep, push or pull” office occupiers have been assessed for their impact on satisfaction and loyalty (Appel-Meulenbroek, 2008)

• Property Industry Alliance and CORENET GLOBAL UK: annual surveys between 2007 and 2013 to assess the satisfaction of occupiers of UK Commercial Property

Occupier Satisfaction with Service QualityLiterature Review (contd.)

• 4400 + Interviews conducted by Real Service between 2002 and 2014, comprising:

– 1293 interviews with occupiers of Industrial property (usually the owner of the business)

– 1334 office occupiers (office manager or other senior member of staff)

– 1689 store managers in shopping centres

– 166 store managers on Retail Parks

• Across all the interviews, more than 400 different questions were asked, covering around 50 general topics

• For this research, these questions were categorised into 35 categories, to be used as explanatory and dependent variables in the quantitative analysis

• Respondents were asked to rate their satisfaction with aspects of their tenancy, using an ordinal response scale of ‘1’ to ‘5’

• Legitimacy of performing quantitative and statistical analysis with such a scale is discussed by Carifio & Perla (2007) and Hair et al. (2014)

Occupier Satisfaction with Service QualityData

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• Satisfaction with Property Management

• Overall Satisfaction

• Stated Likelihood of lease renewal

• Willingness to Recommend Landlord or Property Manager

Dependent Variables

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Independent Variables• Amenities and Toilets• Approvals and Documentation• Building• Cleaning• Communication• CSR and Values• Customer service• Health and Safety• HVAC and Lighting• Image• Landlord performance• Leasing process• Lifts and escalators• Location and Vicinity

• Maintenance• Marketing and events• Occupier website• Parking and public transport• Reception• Refuse and Recycling• Renovation• Rent Value• Responsiveness• Security• Service Charge Value• Signage• Tenant mix• Understanding needs

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Correlations with Overall Satisfaction

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Y

Structural Equation Modelling using SMART PLS

• Formative Indicators – Multicollinearity?

– Significance of Path Weights

• Reflective Indicators – Composite reliability - Cronbach’s Alpha

– Indicator reliability - statistically significant outer loadings in excess of √0.5 (i.e. 0.708)

– Convergent validity - Average Variance Explained (AVE) of a construct is greater than 0.5

– Discriminant validity - Fornell-Larcker Criterion and cross-loadings

• Assessment of Model– The significance of path coefficients (assessed by Bootstrapping)

– R2 – the coefficients of determination

– f2 – the effect size

– Stone-Geisser Q2 – the predictive relevance (assessed by Blindfolding)

– q2 – its effect size

Occupier Satisfaction with Service QualityMethodology

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Importance-Performance Grid, adapted from Fornell (2007)

Low Importance & Strong

Performance - Maintain or

Reduce Investment or

alter target market

High Importance &

Strong Performance -

Maintain or Improve

Investment – Competitive Advantage

Low Importance & Weak

Performance - Inconsequential – do not waste

resources

High Importance &

Weak Performance -

Focus Improvements

here – Competitive Vulnerability

Performance

Importance

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Path Model for Retailers

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Retailers: Path Coefficients

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Retailers: Effect Size of Relationships

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Importance-Performance Analysis

Retailers’ Overall Satisfaction

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Path Model for Office Occupiers

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Office Occupiers: Path Coefficients

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Office Occupiers: Effect Size of Relationships

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Importance-Performance AnalysisOffice Occupiers’ Overall

Satisfaction

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Path Diagram for Industrial Occupiers

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Industrial Occupiers: Path Coefficients

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Industrial Occupiers: Effect Size of Relationships

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Importance-Performance Analysis

Industrial Occupiers

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Retailers: Lease Renewal Intention and Willingness to Recommend Landlord

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Office Occupiers: Lease Renewal Intention and Willingness to Recommend Landlord

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Industrial Occupiers: Lease Renewal Intention and Willingness to Recommend Landlord

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• Logistic Regression: Willingness to Recommend Landlord as a function of SERVQUAL dimensions

• For Industrial properties the most significant predictors of willingness to recommend are the SERVQUAL dimensions of Tangibles and Empathy

• For each unit increase in satisfaction with tangibles, the odds of a respondent recommending the landlord increase by a factor of 2.18

• For each unit increase in satisfaction with empathy, the odds of a respondent recommending the landlord increase by a factor of 2.5

• For office properties, the most significant predictors of willingness to recommend are the SERVQUAL dimensions of Assurance (4.78*) and Empathy (1.77)

• For retailers in shopping centres, the best predictors of willingness to recommend are Empathy (3.85) and Assurance (2.29), with Responsiveness (1.39) being significant at the 10% level

*(Odds ratios shown in brackets)

Service Quality in Commercial Property Management and its impact on Occupiers’

Willingness to Recommend

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Summary of Key Relationships

Retailers

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Summary of Key Relationships

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Summary of Key Relationships

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Summary of Key RelationshipsOccupier Satisfaction

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Summary of Key Relationships

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Summary of Key Relationships

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Empathy of property manager (Communication and Understanding Occupiers’ Business Needs) is crucial for Occupiers’ Overall Satisfaction

Assurance (Professionalism and CSR), Reliability and perception of receiving Value for rent and service charge have most impact on lease renewal intentions

Empathy and Assurance are most important for Advocacy

Tangibles (mainly the location, form & function of the building) strongly influence occupiers initial choice of premises, but feature less strongly in their overall satisfaction and behavioural intentions

Amenities, HVAC, Security & Signage matter to industrial and office occupiers yet are often considered inadequate

Clear and transparent service charge documentation helps occupiers understand expenditure and improves perception of receiving value for money

Determinants of Satisfaction amongst Occupiers of UK Commercial Property: Key Findings