Office buildings are a common form of commercial real estate, and though management intensive, can provide a significant profit. An office building situated in the right area has the potential to generate cash flow right from the start.
However, higher returns also mean higher risk. Office buildings are one of the first types of assets to go in a highly volatile market. In a difficult economy, offices are often the first thing to go as employers either cut their workforce, relocate to home offices, or close altogether.
In order to ensure you have the best possible setup for success, make sure any property you purchase is in a low vacancy area, and pass on buildings that are partially or completely vacant.
How To Attract Quality Tenants For Office Buildings
Attracting quality tenants can be more difficult than you think, as you must consider a mix of tenants that work well together. That means sticking to one type of industry like lawyers, accountants, and financial advisers. Another way is taking tenants as they come, deciding which ones fit according to the current makeup of the building.
The choice as to which way is the best depends on market demand, and how much time you have to wait until you see significant cash flow. Either way, making sure your property attracts as many high-quality tenants as possible should be your goal right from the beginning.
The suggestions below will not only help you attract quality tenants but will also increase the value of your commercial income property.
Add Square Footage To The Property
Increasing the square footage of the property is one of the most common ways of upping the NOI of office buildings. As long as the demand is there and construction costs are low, this can be an easy way to quickly increase profits.
Keep in mind that physically adding square footage is one way of adding more space that increases the amount of rentable square footage. This space is not only more lucrative, but it makes for a higher load factor, allowing you to raise rents when the extra space goes towards shared amenities.
This can be done by recalculating the rentable square footage according to BOMA’s method for recalculating square footage. Even though the BOMA standards have been around a long time, there are still buildings whose footage either wasn’t recalculated or was recalculated but never implemented. In fact, full floor tenant factors which used this method went from 8% to 10% to 10% – 15% load factor.
Add Shared Amenities
Amenities such as:
- private lounges,
- complimentary WiFi,
- conference facilities booked through an online system,
- and trendy cafes quickly are becoming the quickest way to attract high-quality tenants.
The idea of creative office spaces was first seen in the technology industry. But the idea of creating a specifically designed workspace where employees could work and play together has now become a mainstay of the successful modern office.
These amenities are more than just workspaces. They are spaces designed to provide experiences that allow optimal work to take place.
Which amenities to add depends on several factors. However, statistics show that while renovations for added amenities can rise up, the value gained results in improved tenant retention, higher rents, and increased equity.
The amount of space allocated to amenities, some investors are dedicating entire floors to shared amenities. While others, limiting themselves to fitness centers and cafes, set aside about 3%. Your best bet is to allocate a minimum of 10%, upping that number to at least 12% if office building selection in your area is highly competitive.
Don’t Forget The Exterior
First impressions matter and an exterior with low-quality finishes and halfhearted landscaping can turn off even the most easygoing tenants.
Fortunately, it’s unnecessary to renovate the entire exterior in order to achieve a memorable building. The following methods are low cost, easy to implement, and can be changed from time to time to update the buildings look.
- Replace doors and windows
Replacing windows and doors that are either outdated or poorly constructed is one of the most dramatic ways of improving office buildings appearance. Incidentally, it will also help you lower the energy costs of running the HVAC system.
- Invest in landscaping
Many office buildings start out with professional landscaping. But for some reason, they end up with a hodgepodge of plantings that detract from the entrance. Professional landscaping is one of the best ways to get the most bang from your buck, and you can get it at a reasonable price.
- Update the signage
Office building signs serve an important function. Signage outside of the building makes it easy for staff, clients, and prospects to easily find their way into the building. Consider replacing both exterior and interior signs in order to provide a unified look to the entire property.
- Increase parking and security
This includes repainting parking lines, repairing cracks in the pavement, adding cameras, an alarm system, mirrors, and other security features helps tenants feel safer, and decreases your insurance premiums.
Remember, these are just a few of the improvements you can make to attract tenants and increase your property’s value. You don’t need to implement all of them at once. If you’re on a tight budget, asking your prospective tenants which improvements they’d appreciate most will give you a good idea which improvements are the most essential.