A Choice of Positioning

Developers working in the office real estate segment are faced with the inevitable question of how to position new projects. Should they create a new brand for each or create a project network and unite their various properties under a single umbrella? The question might not always seem worth the bother, especially under today’s demand conditions. It seems that in any event, the property will find tenants no matter what you do. Reaping the fruits of good positioning may not be possible until after market saturation.

For the majority of market players, the standard tactic has long been the development of a united brand of office centers. In this scenario, the new properties are positioned as part of an already functioning network. These projects have names like “Dukat,” “Legion,” “Chaika-Plaza,” and “Mosenka.” The newer players are following in their footsteps. For example, the new investment group, Yarfinvest, is now settling the positioning question for its two first office centers. The final decision has not yet been accepted, but it seems that the scale is leaning toward a unified brand. The creation of the new network will increase the resonance of the project and ease the eventual expansion into the regions. “We are planning to build regional offices in the future and the presence of a strong brand will help us to advance our product. The success of the first projects will be reflected throughout the brand,” says the general director of Yarfinvest, Dmitri Kuptsov.

Emphasizing project continuity, one can significantly increase the trust of the tenant. The effect or recognition is the same here as in the B2C segment: a well-known name is like an anchor. “Experience shows and justifies that the consumer is affected by a familiar name, and this same mechanism works on tenants, just as it does on shoppers in the B2C segment. If they know that Bashnya1 is a good building, they’re likely to expect the same from Bashnya2 and 3. For example, the first two phases of the business park, Aurora, were wonderfully done and, accordingly, when the third phase is ready most tenants will trust the name and happily line up for their leases,” explains the deputy head of office real estate for Cushman & Wakefield Stiles & Riabokobylko, Yelena Alpatova.

With every successful new office center the benefits of belonging to a brand increase – and the necessary advertising budget shrinks. “Of course, the success of the first project allows one to get serious benefits from your brand and from the progress made by subsequent projects. The success of the first step somehow casts a ‘shadow of success’ and the second step will come at a smaller price as regards advertising and PR expenses,” says the director of external relations for Forum Properties, Valekh Rsaev.

The first project becomes the calling card for the entire network. Often it becomes a sort of show room in and of itself. When people make a responsible decision, the chance of seeing it with one’s own eyes becomes all the more valuable. The most obvious way of understanding a project under construction is to examine an already functioning center from the same network. For example, as the director of commercial real estate management at UK Legion, Olga Kovaleva, has pointed out, the potential tenants often drop by Legion 1 to get a look at the company’s level of quality. Most often this step is taken by foreigners who are not familiar with the realities of the local market. The advantages of positioning an office within a well-known network may very well be neglected when emphasizing the competitive advantages of a single project. More often the successful geographic position is played out. “The concentration of resources (a unified concept, unified company style, unified design standards, unified marketing materials,) significantly reduces the cost of positioning a project. But some times it’s worth ignoring all this. We have had experiences of developing two individual projects, the concepts of which were designed in order to best suit their locations. One of them was Gazoil Plaza on Ulitsa Nametkin, next to Gazprom, where a cluster of natural resource businesses had already formed. The Gazoil Plaza designation was created with the understanding that tenants would be part of this cluster, gravitating toward Gazprom, and our expectations were rewarded,” said vice president of Tashir, Vitalii Efimkin.

The Boundaries of a Brand

The general positioning of a network does not necessitate the cloning of office centers. The unifying factor is, more often than not, the quality and cluster of the properties. Using several bright details, one can make the brand recognizable. “Often the various phases of the office buildings have original properties with specifically common features. Sometimes we have completely dissimilar properties in various areas, but their belonging to a single proprietor is emphasized in the name. For example, Capital Group has office centers such as Capital Tower, Capital Plaza, and Capital City. Often developers consciously work with this or that tenant or management company,” explains Yelena Alpatova.

From time to time the proper positioning can even be emphasized with a common brand. For example, Legion-Development for every Legion project searches out a new architect. As the companies have long felt, the original architecture of every phase raises the recognition of the network as a whole, in its own turn easing market progress.

If the quality of construction and architectural value is high enough, the conceptual difference between various office centers may have little or no real significance. The attempt to unify projects of varying quality levels under one brand might undermine the trust of the tenants and spoil the identity of the brand. Indeed, in many events experts advise against bringing wildly variant properties under any one umbrella.

“Positioning in many circumstances might depend on the class of office centers that belong to any one company. Many proprietors, having office centers from class A, B, and C, might try to distance their less prestigious properties from their brand by creating different marketing designations. This is justifiable, if the company has made the strategic decision to develop the only the class A properties. If the developer is focusing his interests within one class, then he should use the umbrella positioning,” says Valekh Rsaev.

A balanced portfolio of projects from varying quality segments might raise the loyalty of tenants. “Ideally a professional commercial landlord has a number of office centers from different segments. In the case of the tenant, if he wants to raise the prestige or economize cost, he might move from one office center to the other but stay under the wing of his old landlord. For example, Enka has an excellent portfolio – a tenant might keep working with them for a lifetime, says Yelena Alpatova.

What’s in a Name?

The name of an office center is the most noticeable element of the brand but, perhaps, the least important. Most often a network is named by the proprietor. One can easily remember that Legion is an asset of Legion-Development, Gals Towers belongs to Sistema-Gals, and the Capital Group’s office centers are all eponymous.

Theoretically the narcissism of proprietors might create problems if a building must be sold. Logically, nobody will want a reminder of the competition sitting their on the facade. But in practice, the name doesn’t really attract so much attention. “It’s enough to remember that after the sale the new owner of Capital Tower didn’t bother to change the name, and that’s a good indication of how valuable a name is in commercial real estate. It’s well known that this isn’t the only example of this phenomenon either,” says the director of business development for Step by Step, Dmitri Ryzhakov.

“Most properties are named after the company, but I don’t know that there would be any negative effect on the owner after a sale. In an extreme case, he can always change the sign. For example, in Gazetnyi Pereuglok there is a building which once belonged to McDonald’s. The building was known as McDonald’s Tower. After the sale there was a question about changing the name, which was associated with the old owner, but in the end everything stayed as it was. On the other hand, I think that if the decision is made to change the name, the new designation might take hold quite quickly. One example is probably Capital Tower on Brestskaya. The property long ago changed hands but the name’s still the same. The reminder of the competition isn’t bothering the new owners,” says Yelena Alpatova.

The brand of office centers lives its own life and has its own independent value. A successful project, the name of which includes the footprint of the property-owner, does not always raise the reputation of the company and influences the fate of the project. “Using or not using the name of the developer is not of principal importance in my view. The name of the developer on the sign does not guarantee the success of the project. More often, the success of the project affects the reputation of the developer,” says Dmitri Kuptsov.

A Good Name instead of Marketing

The market is still in formative stages, for the moment, and the marketing technologies are not yet fully being taken advantage of. In the majority of cases, clients simply follow the developer. “For now we do not yet have the culture of recommendatory letters, nor do we use positioning mechanisms, the basic PR role of which will be played by the company which is doing the brokering, construction, or management. This is all ephemeral enough, but at the given moment we can consider what’s real and what’s not. If a company has at least 3 or 4 properties on its shoulders, then I expect that the company has already had its childhood diseases,” says Dmitri Ryzhakov.

In developed markets, however, a developer’s brand might be the essential competitive advantage. For companies with a good reputation, positioning a new project on the market is substantially simpler. For now the Russian developers are at the start of a new road, and much will depend on their first steps.

“The reputation of the developer, like credit history, can work in its favor during crisis periods on the market. It’s easy to be successful during good years – but a reputation’s real value is understood during the recessions. Earlier or later we are going to come into the sort of situation that is currently seen by world auto-makers,” says Valekh Rzaev. “Compare the reputation of Mercedes as consumers understand it and you see why advertisements for Mercedes are rare, for as one of their factory foremen once said, “Our cars don’t need advertisements.” It’s the same with real estate among national developers, and indeed the conscious effort to increase the quality of developer’s work will require time.”

Will a Quality Office Sell itself?

Many developers believe that the future of a project depends less on the details of positioning and more on the characteristics of the building itself. The basic factors are the quality of construction, the location of the property, and the expectations of the tenants. “The first property especially says everything all by itself. There is a wonderful Russian saying: better to see it once than to hear it 100 times,” says Dmitri Kuptsov.

But, as experts agree, neglecting the marketing questions might lead to losses even when there is such tremendous demand as we’re seeing today. “One must always attract attention to the advantages and distract from the failings of your projects – it’s a general rule. For this a marketing campaign is essential. It’s common now for proprietors to think that things will always be as they are today. Actually, property is being let out, but if we were to spend more on marketing we might attract different tenants altogether and perfectly different rental rates, which certainly will play a big role in the sale of a building as an investment product,” says Yelena Alpatova.

“A creative approach almost always and everywhere leads to storm, the result of which can be a primitive form of advertising carpet bombing and millions of dollars spent. With this sort of massive advertising napalm, though it may take up the whole budget, one still might set the mass media alight,” says Valekh Rzaev. The effort to create success with hackneyed methods might lead to unhappy results. If a product doesn’t fulfill the promises of the advertisement, then the trust will fade and purchases will stop. Umbrella positioning also faces obstacles in a number of cases. The existence of a brand requires the presence of a good image and strong reputation. And if the reputation is cruelly corroded, how will the product be seen? For example, if a company is a household name and its properties are known by even the kindergarten teachers, but the quality of its buildings is extremely questionable, can this brand be considered successful?

“If the reputation of such a company, thanks to poor quality of development work, is slightly ambiguous, then doubt in the effectiveness of the large investment in the brand is obvious for me. Similar opposition is not only sporadic, but characteristic for the entire national construction business,” says Valekh Rzaev. Additionally, the elementary mistakes can be made by poor positioning decisions made without considering the needs of the audience. “The culture of development is one of the most serious problems today, and not just for specialists. When are a brand’s excellent signs taken outside the cultural context, outside the history, arts, semantics, phonetics, and ethics? Can you put a Mercedes transmission in a Volkswagen?” asks the director of external relations for Forum Properties.

As experts agree, the genuine positioning questions will be answered only after a number of years. “Even the very well-known players, participating in tenant pools, will not always most distinctly supported by the positioning of their properties, in which they must work. In order to manage all these projects and risks, a whole chain is needed which often breaks down. An understanding of the problem is half of the solution. Everything will be up and running in a few years,”

The positioning mechanisms for office real estate for now are only beginning to be understood. Many players must try to avoid two principle problems: the neglect of marking and the desire to hide serious problems with insistent marketing. Even the most brilliant marketing company can’t pull an unsuccessful project out of the bog, but real quality might go unnoticed if the information doesn’t reach the consumer.