Look around and you’ll probably see cranes dotting the skyline. It seems like there’s new construction happening on almost every block. That’s particularly the case here in the Miami-Dade area, where construction activity remains at record highs.
With the onslaught of new products coming to market, many office investors are growing concerned about how they’ll keep up. New office buildings tend to be loaded with amenities—some of which simply cannot be accommodated in older Class B and Class C assets.
But all hope is not lost. There are several ways office owners can compete with new construction.
- Price your space accordingly.
This may not seem like rocket science, but truth be told, we often see owners trying to command top-tier rents for increasingly outdated office products. The land and construction costs for new office buildings are so high that landlords must charge sky-high rents to make the numbers work. This presents a competitive advantage for owners of Class B and Class C assets. Adjust your pricing to attract users who cannot afford to pay a premium for new Class A buildings. Many tenants are willing to forego building amenities for more affordable rents.
- Selectively integrate amenities.
Urban offices have taken a cue from their amenity-rich counterparts in the suburbs. Multi-tenant office buildings in metro areas like Miami-Dade now boast more than just fitness centers—owners often program the space with cocktail hours, on-site barber shops, sleep pods and more. Integrating these features into a Class B or C office building simply may not be feasible for many building owners.
Rather than getting into the amenity arms race, owners of older office buildings should consider integrating amenities very selectively. This may mean renovating the office lobby or installing new floor-to-ceiling windows to improve access to daylight. It may mean carving out a small portion of underutilized ground floor space to provide a social co-working type space that encourages tenants to mingle with each other. Technology has become more important than ever to office users, so consider ways to upgrade the building infrastructure that allow for increased computing and electrical demand. High-quality digital infrastructure is a must for some of today’s prospective office users.
Go beyond the physical footprint of your office building. Sometimes, the easiest solution is to provide amenities outside. Miami-Dade has some of the best year-round weather, so take advantage of it! Consider reworking a portion of your lot to provide a fun, outdoor patio where tenants can take a break or unwind after a long day. This only requires some simple landscaping improvements and small investment in outdoor furniture but will be heavily appreciated by office tenants.
- Increase tenant allowances.
One way office owners can compete with new construction is by increasing tenant allowances. We are starting to see owners dig deeper into their pockets to ease the financial burden of building out a space. This is particularly beneficial for smaller office tenants or those who are less established and may not have the financial wherewithal to complete their ideal buildout, especially given how rapidly construction and material costs have risen in recent years. Increasing tenant TI can really help move the needle for a company looking to make a relocation decision. Landlords often trade higher allowances for higher rent and long-term leases, as this helps boost the property value, which tends to be tied to net operating income.
These three strategies are all proven ways of shoring up occupancy and boosting rental income—two key factors that prospective buyers will look at. So whether you’re a buy-and-hold office investor, or someone looking to sell for top-dollar in the near future, these tips can help owners of older office buildings improve their bottom line.Interested in learning more about the Miami-Dade office market? Contact us today at firstname.lastname@example.org.