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Rise in hybrid work leads to more office renovations

Recognizing that the hybrid model is most likely the new normal when it comes to office work post-pandemic, businesses are having their offices renovated at a historic pace, Bisnow reports. Architectural firms have generated more revenue from renovations than new construction for the first time, according to American Institute of Architects Chief Economist Kermit Baker.

Baker also noted that the renovation surge could be a mainstay versus a late pandemic trend. Necessity is one driver for the sudden uptick in office renovations, according to CBRE Global Head of Occupier Thought Leadership Julie Whelan. Landlords are facing historic vacancy numbers and looking for ways to make their properties stand out in future tenants’ eyes.

For example, Sage Realty recently announced a $53 million upgrade for 767 Third Avenue, its Class-A office tower near Grand Central Terminal in Manhattan. Renovations included a new lobby area and a revised amenities program for tenants that comprised a library, terrace garden, cafés and communal areas. The company’s hope is it will attract boutique companies at time when New York office space market is highly competitive.

“The mindset right now is that you have to be reinvesting in your property,” Sage Realty CEO Jonathan Iger told Bisnow. “It’s about how you define quality.”

Office renovations on the rise

There’s currently no shortage of work for architecture firms, according to Baker. Brookfield and WatermanClark plan to invest $100 million in renovations at the Lever House in Manhattan. Meanwhile, Merchandise Mart in Chicago is getting a $40 million upgrade and Boston’s One Post Office Square is completing a $300 million renovation. The strong push to upgrade and modernize buildings comes from fear of properties becoming obsolete.

Occupancy sensors and space analytics, along with consultants’ suggestions, are driving many of these office renovations, Bisnow reports. Meanwhile, Density, a firm that installs sensors for measuring and analyzing office activity, noted an uptick in accounts during the last 18 months. The company believes the increase is in part because businesses want to see how renovated offices impact workplace performance, according to Nellie Hayat, Density’s workplace innovation lead.

“Most of our clients who adopted the wait-and-see strategy in 2020 have now decided to move forward with plans to redesign their offices to accommodate a hybrid workforce,” Hayat said.

Strategies behind office renovations

The decision to renew their lease or not plays a role in how CRE owners and tenants evaluate their space needs. Parties that move for a better space will build out more collaborative areas, according to Whelan. The new office space is viewed as a blank canvas to change. Meanwhile, CRBE recently surveyed 185 office tenants and only 9% of firms said they plan to stay in the same office portfolio over the next three years. The survey also revealed that 52% expect to contract and 39% plan to expand.

Whelan’s team sees office upgrades in one of three categories: physical (additional conference rooms and collaboration space), digital (apps to order coffee or book a conference room) and human (better air filters, more health and wellness measures) that can be pitched to potential tenants. Meanwhile, firms are trying to move away from the “seas of desks” office setting and instead have more open, collaborative spaces. Demand for such a layout is quickly outpacing desire for amenities typically tied to coworking spaces like games and beverages.

“This isn’t Field of Dreams. If you build it, they won’t necessarily come,” Iger told Bisnow about the turn toward more serious amenities. “There’s a time and place for shiny objects, like the basketball court.”

While office renovations are up, not every tenant is focused on building upgrades. Some companies are moving to coworking spaces to reduce their footprint and save money, according to Whelan. Meanwhile, landlords and CRE owners are opting to convert current offices into flexible workspaces. Approximately 51% of businesses want to make flex space a key part of their portfolio during the next two years—a significant increase from today’s 17% mark.

“Real estate has never moved quickly,” Whelan told Bisnow. “That’s the nature of the beast. Frankly, it never had to, with long-term leases. And the pandemic turned that on its head. It’s an inflection point, and you need to do it or buildings will just become obsolete.”


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