How Starwood Capital Group Uses the VTS Platform to Ensure Success in Office Leasing

Given vast shifts in trends around office tenant demand since the beginning of the pandemic, it’s become essential for companies to optimize data usage to ensure what they’re offering matches what tenants require.

Partner Insights spoke to Andrea Pierce, managing director and head of U.S. office & industrial asset management at Starwood (STWD) Capital Group, to discuss current trends in tenant demand, and how the company uses data to maximize its office investments.

Commercial Observer: In your role at Starwood Capital Group, what changes in tenant demand have you identified over the last two years?

Andrea Pierce: Tenant demand has been very transitional. In the depth of the pandemic, tenants were looking for short-term solutions, whether for a renewal or a new space, because they didn’t know what they were going to need. Now, we don’t see that so much.

However, there’s still a lot of uncertainty about how much space tenants will need. By and large, they’re all going to a hybrid work environment, and companies are trying to figure that out. If employees are going into the office three days a week, which seems to be the norm, companies still have to plan for peak occupancy unless certain departments or divisions work from home.

CO: Are there new expectations when it comes to how tenants search for space, or how it’s marketed, compared to pre-pandemic?

AP: Yes, and those expectations are interconnected. It’s all about reducing friction for tenants. They want easy solutions. We are seeing a big increase in tenants looking for prebuilt suites, or space that’s in move-in condition. They don’t want to deal with buildout or visioning. They just want to see what they’re getting and they want it now. We’re seeing it with more sophisticated and larger companies that are, in some cases, taking a full floor that’s built out. Pre-COVID, demand for prebuilt suites was typically 3,000 to 5,000 feet at most.

Reducing friction is also important to marketing space. How do you showcase your buildings and available spaces digitally so prospective tenants can preview them ahead of time? We adopted VTS Market, which we use for virtual tours. Tenants appreciate having a digital site where their broker can say, “Here are five buildings that meet your criteria,” and then give them a link to a site that has everything: pictures, videos, floor plans, virtual renderings, that kind of thing.

Starwood Capital’s San Francisco office is looking for new space, so I’ve been on the other end, the tenant end, and it’s really made a difference. When I get a link to a site and all that’s on it is a static leasing brochure, it’s disappointing. If I get a link to a site that has lots of pictures of the amenities and prebuilt suites, floor plans for all the available spaces, etc., it saves me time. This digital approach is where the industry is going, without question.

CO: What are some of the most important changes office building owners are making, and must make, to attract tenants today?

AP: You have to have a top-quality building. I have not seen a deviation from this, in any market. The best buildings are full and getting their rents, and their rents are growing.

If you’re in the next tier, things are a little more challenging. Tenants want a high-quality building with high-quality amenities, and they want their space built out. They’re trying to attract their workers back into the office, so they want space that is better than their employees’ homes. In terms of amenities, the one amenity that’s definitely moved up the priority list is outdoor space.

CO: How is the availability of real-time data impacting how strategic investment decisions are being made?

AP: It’s been very helpful for determining which investments and upgrades actually resonate with users. For example, we completed a building renovation a few months ago, and I can point to actual metrics comparing tour activity pre- and post-renovation for similar time periods. I can compare lease economics — not just rent, but concessions, too. I can easily monitor which size spaces are experiencing the most demand, which helps with demising decisions. I can easily track which industries are the most active for a particular building. I can track the usage of my amenities with occupancy sensors, which inform capital decisions. I no longer have to manually compile this information or wait several months for a research provider to do it.

CO: Tell us more about what benefits Starwood Capital has derived from the VTS platform.

AP: VTS started as a workflow tool for us. We have a large office portfolio and we used the product to track leasing progress and deal stages. But now, the real benefit is the data and analytics VTS provides. I can watch tour activity every week, by count and by size. I can see conversion rates and conversion timing — how many tours become executed leases and how long the process takes in each deal stage. I can compare these metrics over time.

I can see the effectiveness of various marketing channels, such as email blasts, websites and brochures. These are metrics I never had before, or I only had anecdotal information on, or I had to calculate the metrics manually. Now, with all this information in VTS, it’s very easy to see and understand what is happening in the portfolio with overall demand, and whether we are using the most effective marketing tools.

CO: How should owners be using data to determine the best use of resources to satisfy potential tenant needs and desires?

AP: The holy grail is determining how to spend your capital dollars wisely, on items that will resonate with tenants, and that will convert into leases. We can use data to measure demand and utilization, whether that’s how many tenants are in our building, or how many people use our amenities and when. I mentioned VTS Rise’s occupancy sensors and reservation systems. An existing tenant might say the tenant lounge isn’t important to them. But we can say, well, your employees actually use it a lot. Here’s the data. It’s really about knowing what our tenants actually use versus what they say is important or not important.

CO: Starwood Capital has a global footprint. How have you been able to leverage the information from the international market to inform leasing and managing strategy in the U.S.?

AP: The obvious answer to that question is the importance of sustainability. Tenants want to know that you have an efficient building and that you’re taking certain measures to reduce energy consumption and a building’s carbon footprint. European jurisdictions are ahead of most U.S. jurisdictions in terms of regulatory compliance and mandates. In Europe, we are seeing rental and valuation premiums for buildings that are sustainable.  Many of the large companies driving these changes in Europe are also in the U.S. so these operational expectations are coming to the U.S., and we need to be ready for them.

View more articles on tenant demand here.