Floor designer

Office buildings on the verge of a midlife crisis – Commercial Observer

Unlike ’80s pop culture, ’80s American office towers are coming of age without renewed appreciation, cultural cachet, or much of a plan for their later years. The aging prognosis becomes even less realistic as the pandemic reshapes the office market, ruthlessly reducing demand while focusing attention on a host of younger, hipper and better-appointed office towers.

“Forty floors of office space with a barista on the ground floor is pretty dated,” said Andrea Vanecko, business market manager for architecture and design firm NBBJ. “With the anticipated reduction in the need for office space and the lack of momentum to attract people, I think this is a no-win situation.”

The origins of this so-called “midlife crisis” lie in the heavy production of office buildings in the 1980s. JLL data for Seattle, for example, revealed that the city gained about 15.2 million square feet of office space during the decade, slightly less than the total amount of office space that had been produced in Seattle prior to that decade.

Nationally, the picture is just as stark. From 1980 to 1989, the United States added 1.6 billion square feet of office space, nearly one-third of the current total supply, according to JLL. This period of corporate and commercial real estate expansion added many offices and suburban office parks. Unlike many existing office towers, these 1980s arrivals lacked prime downtown locations, historically significant architecture, or the types of floor plates and operable windows that make it easier and more attractive to retain or conversion.

The significant challenge posed by this generation of aging office buildings would be significant regardless of current trends: they are in the home stretch of their natural life (a properly maintained building of concrete and glass curtain wall can generally operate for about 60 years without renovations); they need seismic and mechanical upgrades; and they are woefully energy inefficient and environmentally damaging. But the threat of remote working becoming permanent and devaluing downtown space – research published this summer estimated that a long-term shift to working from home could destroy $500 billion in office value at home. scale by 2029 – suggests that these buildings should not be renovated but redesigned.

“The dynamic of urban downtowns right now is that they’re really looking for a new definition of mixed-use, aren’t they,” said Vanecko, who helped write a report, in collaboration with JLL , which explores future potentials for skyscrapers about to hit the mid-century mark.

Financial considerations have also changed. Converting part of an office building to residential made little sense when the office space was so much more financially viable, and such moves still tend to be limited and expensive. But if valuations continue to fall, new opportunities could arise. Vanecko argues that the total redevelopment, redesign and redesign of an old tower would take two years and be expensive. But once that investment is made, it could fetch 120% of market rent and be completed before a more expensive construction project, which would take around five years.

The NBBJ analysis – whose title, “A Perfect Storm”, highlights the overlapping challenges of the present – takes an almost utopian, urbanist view of what might be possible in these buildings, proposing what could be considered neighborhoods in the towers to revitalize the surrounding structures and commercial districts. Intended as a conversation starter, the report envisions recasting mid-rise buildings into 24-hour vertical cities: solar panels and rooftop tenant gardens, greenhouses on mechanical floors, residential living on upper levels, alleyways enabled , pop-up shops. and climbing walls on the lower floors; and entertainment centers and mushroom farms in basements.

Aside from age, these structures have certain qualities that can make them more attractive for remodels and redevelopments. They tend to be located downtown and often have large plazas that allow natural light everywhere, as the builders were not building sight line to sight line. (They also tend to be more uniform in width than older or newer towers, which may limit some conversion options.)

Vanecko and his team started analytics before the pandemic, but now they’re seeing their take gain traction due to today’s market realities.

“The buildings that get the leases are the new, immaculate, ornate contemporary buildings,” she said. “Owners of these old towers realize that they are at the bottom of the market in terms of attractiveness and rental rates. So now they’re suddenly looking at how these properties can compete with some of these new towers.

Although full or partial residential conversions have received considerable attention, they are not as easy as many claim. Ellen Dunham-Jones, a professor of architecture at Georgia Tech and an expert in sustainable suburban conversions, said real-world architecture and design always present physical challenges. These include operable windows, natural light and plumbing for each unit. Beyond that too, municipalities and neighborhoods often resist rezoning, due to the loss of property taxes. Dunham-Jones has recently had more success with projects turning office space into schools and even warehouses.

“There is so much more attention [paid] to dead malls, because the public, as a whole, was able to visit them and become emotionally attached to them,” she said. “Only a limited number of people went to offices and office parks.”

Sejal Sonani, architect and senior managing director of HLW, whose firm has managed millions of square feet of office repositioning in the Los Angeles area over the past six years, explains that there are two main such categories. of changes: the severe reassignment of a structure and the less serious crisis. The latter is a repositioning that upgrades certain office equipment, adds more public and shared spaceand attracts a different range of tenants and rents.

Changes that are seeing renewed interest from tenants now tend to be the same ones that worked before the pandemic, especially the addition of outdoor spaces, Sonani says. In 2016, the Building Owners and Managers Association International changed its way of measuring tenant space to include outdoor space, making the addition of private patios and rooftop terraces even more financially attractive. HLW’s redesign earlier this year of the US Bank Tower, owned by Silverstein, the tallest office building in Los Angeles, created an indoor/outdoor lounge on the ground floor and a game room/social space on the seventh floor. Rents increased by 40 to 45% after this renovation.

But those kinds of rework aren’t as easy for Class B and C towers today, especially as rising interest rates and general market uncertainty make financing more difficult. Difficult to commit when “no one knows where the office market will land” Sonani said. And the pipeline hasn’t stopped, so without strong demand, any upgrades still have to compete with brand-new spaces that are aggressively courting tenants.

Owners, however, still feel compelled to invest, said Seattle-based senior general manager Lisa Stewart of JLL. There’s no formula that suggests adding X dollars of improvements increases the rent by Y percent, but the risk of doing nothing and missing out on potential tenants seems increasingly too great.

Successful owners are proactive, says Stewart. It is essential to invest today, in anticipation of a rebound in demand in the future. It’s a dynamic that favors institutional landlords, who typically have more resources and the ability to invest in downturns, and focus on ESG, outdoor space and wellness initiatives that can attract more tenants. demanding.

“No owner wants you to sell on price,” Stewart said. “It’s about differentiation and being thoughtful and creative and where you spend money.”

However, building owners cannot reinvest on their own to solve the problem, at least not under the current regulatory and permitting regime. Municipalities need to change zoning and building codes, streamline permits, and invest in conversions to facilitate these large-scale upgrades. Last October, the International Downtown Association, a North American trade organization focused on urban real estate and business alliances, pushed for legislation to give a significant tax credit for downtown office conversions. A Gensler study of Calgary last year found that about 30 percent of the city’s aging Class C towers could be converted for residential use, creating room for more than 4,000 new residents, mostly clustered in the west side of the Canadian city.

“What we’re seeing right now is people are starting to be careful about getting ahead of the game,” NBBJ’s Vanecko said. “Building owners are just beginning to reposition themselves, either because they are looking to retain existing tenants or because they realize they are not well positioned to attract new tenants. It can’t be those types of sterile, old, corporate staging environments.