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Building Success

How Savvy Commercial Property Owners and Developers are Proactively Reassessing their Real Estate Investments

Posted by Kai Thompson  |  November 10, 2020

Preface

The idea of Building Success should be viewed as both an action and an outcome. The action(s) being innovation + continuous improvement of indoor workspaces, and the outcome(s) being improved performance + productivity of our workforce. As discussed in The Space Between, due to the current challenges presented by COVID the Commercial Real Estate industry is experiencing a push toward Healthy Buildings as a standard. In the end, the true objective is not just to have healthy buildings, but healthy people.

(Physical office space) will need to meet new demands including healthy building amenities and more space designed for collaborative work, as well as formal and informal meetings with colleagues.”

Vincent Raufast

EY Consulting Assoc. Partner

The adverse economic effects of the pandemic have put commercial property owners and developers under immense pressure to get spaces leased and projects stabilized even as many companies continue to pause on making major capital decisions. With remote work policies becoming more the norm rather than the exception, many have also speculated about whether overall office demand will decrease as a result. Despite these valid concerns, a September survey by the corporate real estate organization CoreNet Global found that office space is expected to remain the locus for team collaboration, employee onboarding, talent management, and business development. Here we look at how today’s savvy property owners are navigating uncharted waters by maximizing the performance of their current assets, identifying new investment opportunities, and restructuring their portfolios to minimize risk.

1. Maximizing Performance of Current Assets

For many companies, the cost savings of remote work doesn’t eliminate the need for physical office space. In fact, the physical office has a greater role than ever to play in establishing and maintaining corporate cultures, effective talent management and retention, and creative inspiration.

In a world full of unknowns, the desire for flexibility remains constant. Owners and developers that embed this element into their real estate strategy are setting the stage for stronger, longer-lasting relationships with their tenants.

Traditional incentives such as periods of free rent and increased tenant improvement packages will do little to rival safety concerns. Emphasis is better placed on touchless bathroom fixtures, self-opening doors, common areas that allow for social distancing, and other features and amenities that at once address current concerns while having post-pandemic appeal. Other considerations include air purification systems, micro-filtration in the HVAC system and ultraviolet light cleaning procedures.

2. Utilizing Location as a Corporate Strategy

While it’s unclear whether occupiers will need less real estate overall, where an occupier’s office space is located may change in response to COVID. With safety, quality and geographical location continuing to be important selling points for attracting and retaining talent, many businesses are likely to follow the workforce talent as they relocate to the suburbs.

Having experienced positive results with working from home, many organizations find themselves at a turning point with how they think about commercial spaces. This has shifted the focus on office real estate from dense, urban or centrally located business districts to a broader range of alternatives, including a “hub-and-spoke” model comprised of a higher quantity of smaller offices in suburban locations. This more distributed model would:

  • Bring businesses closer to job seekers or other talent pools.
  • Bring organizations closer to their clients or customers—even present options for co-locating with them.
  • Better support employee performance and organizational resiliency.
  • Contribute to the improvement of local communities as well as the urban landscapes throughout various geographic regions
3. Minimizing Risks

Due to the mass market disruption caused by the pandemic, many organizations are reassessing their cost structure and options for minimizing or mitigating cost associated risks. Meanwhile, offices across the globe are under-occupied as millions of corporate employees work from home. Many organizations are now choosing to streamline their operations and reduce overhead costs in order to better weather the storm financially, with hopes to come out stronger than they did going into the pandemic. As a result, many are looking for ways to downsize their corporate real estate footprint.

After decades of focusing on the development of central cities, it might be time to challenge everything we thought we knew and widen our lens beyond big new developments in urban cores to include walkable suburban developments nearest to those that do the work. The shift from company offices that occupy multiple large floors in a single building to a series of distributed nodes throughout multiple locations would mean more mixed-use commercial buildings that serve a truly diverse cross-section of industries and workers. This approach would facilitate more high-quality connections, essential for strengthening existing teams and creating new relationships within and among organizations – a highly desirable and cost-worthy benefit for any tenant.

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