Marc DeLuca is CEO of KBSone of the largest investors in prime commercial real estate in the country.
There’s a lot of buzz about the future of office buildings – from their role in business to home remodeling. But while the term “office” is commonly used to categorize workplaces, not all office space is created equal.
It is true that the office sector is going through a post-Covid tipping point. Yet, despite this disruptor, I see office buildings repopulating as companies recognize the value of a central workplace. These values include mental health benefits, mentorship opportunities, and marketplace recognition.
As pandemic fears fade, I see a clear frontrunner in the office real estate recovery: prime (referred to in the industry as Class A) space. Experts are even seeing a “flight to quality” among companies using offices and some are predicting newer Class A office buildings as one of the types of assets that the highest amount of rental activity in 2023. With approx 80% of the office rent I see companies increasingly looking for fresher, modernized office space to house their teams.
In my opinion, Class A, along with well-furnished and upgraded Class B-plus office buildings (older properties that have been recently renovated with quality amenities but lower rents), offers businesses much more than “regular” workplaces – a phrase often used to describe no-nonsense office space. In fact, I believe they provide what today’s businesses need to succeed in a competitive business environment.
Embrace amenities to attract and retain top talent
Companies have been competing for the best employees for years, using office space to recruit and retain teams. In the aftermath of the ‘great resignation’, this need to provide work environments with desirable amenities has been reinforced.
That is why I see that companies want office space that meets the needs and wishes of their employees. This means there is a high demand for beautifully designed buildings with well-appointed workspaces that offer all the bells and whistles employees are used to when they return to their workplace.
Look for well-designed, modern buildings with amenities that encourage collaboration and creativity, such as a great indoor or outdoor tenant lounge, conference room, and outdoor areas with Wi-Fi. It’s these kinds of features that I see attracting companies to the prime locations of my office.
For example, one of our properties, Accenture Tower, was already an iconic asset, but after renovations and the implementation of new amenities, the occupancy rate rose from 80% pre-pandemic to almost 100%, eventually giving tenants everything from transportation and food and fitness to an indoor/outdoor tenant lounge where they can relax or party with colleagues.
From top-level amenities to sustainability certifications
Today’s businesses need more than four walls to stay ahead of the competition. These businesses also expect their landlord to go above and beyond and provide the “extras” that ensure their success, which is much more likely to be found with Class A properties.
Some of the next-level offerings that office building owners provide to tenants include concierge service, excellent internet connectivity, state-of-the-art conferencing technology, on-site car detailing, on-site EV chargers, and gourmet food and beverage options. These services and conveniences help businesses and their teams stay focused, productive, and on track to achieve their business goals.
Moreover, as ESG (environmental, social and governance) factors become more prominent, tenants are particularly interested in buildings that operate with health and sustainability in mind. To that end, properties that offer wellness amenities such as state-of-the-art fitness centers, contactless elevators and healthier indoor air are more important than ever before in the post-Covid era, as they help keep businesses and their employees healthy and industrious.
In addition to health and wellness, many owners and operators of prime office buildings look to environmental and technology certifications and verifications such as LEED, Energy Star, and WiredScore to ensure tenants feel supported.
The aforementioned flight to quality has a ripple effect. Best-in-class office buildings can truly transform neighborhoods and increase their appeal to today’s businesses, encourage other businesses to invest in the area, and improve entire communities.
Certain luxury amenities, such as on-site shops and great lunch spots, can also make an office building a success in areas that could be considered high-risk. I have seen that even in crime-ridden cities, well-located properties with excellent local amenities can attract office renters and change the neighbourhood.
Building shopping and dining provides tenants with a seamless experience during working hours, giving businesses another reason to choose Class A buildings in some of the country’s most attractive markets.
There is a split in office real estate between prime and lower quality buildings – like the difference between a butter knife and a Swiss army knife; both can cut, but only one gives you the tools to handle any situation and thrive. This difference helps attract companies focused on providing their teams with exceptional workspaces in great locations within key markets.
Premium office buildings can help companies attract and retain top talent while giving them an edge in a competitive business environment. These properties, which offer excellent on-site amenities, can make even office space in less secure areas more attractive to businesses. As office building occupancy rates continue to rise, I see Grade A buildings pointing the way to a sustainable recovery that can benefit companies, their employees and the communities in which they operate.