Owners should consider upgrades and improvements to commercial real estate that may be showing its age.
According to Terry Coyne, vice chairman at Newmark Knight Frank, and Jonah Yulish, associate, retail investment sales at Matthews Real Estate Investment Services, both in Cleveland, it’s important to consider all options when planning a refresh.
“Downtown (Cleveland) and the suburbs are going through a huge transformation now,” Coyne said. “You go to a building and typically see a cafe or a gym. But, if you look at buildings like Key Tower or Eaton, people are spending a ton of money making common areas have that Starbucks feel. These are all amenities to attract employees because I think people are realizing the days of putting an employee in a cube and trusting they’ll work fine are long gone.”
As businesses and industries develop at breakneck speed, Coyne said the need for property refreshes plays a role in the “arms race for talent.”
“It now filters over into space,” he said. “It can’t just be four walls and a coffee machine. It has to be in a building that offers other things to do. And you have to do it now because of a generational shift in work. You do it because you want to stay competitive.”
Buildings with more modern amenities just do better, Coyne explained, and there are more tenants with higher rents.
“For an office building, if you haven’t refreshed it in seven to 10 years, you’re going to be competing with folks that have better designs,” he noted.
Yulish said that the refresh depends on the product type. For example, in retail properties, Yulish said the key is to have a fresh facade.
“Sometimes, there are also capital expenditures to take into account,” he said. “It’s all of those things that require you to put yourself into the tenant’s shoes, which will make them stay longer.”
Property owners are worried their tenants will leave, Yulish said, and landlords want their tenants to stay.
“No one wants a dead shopping center,” he said. “So, if you do have vacancies, you have to be willing to put some dollars into the space itself and make attractive offers. You also have to give tenants allowances to do what they need to do. It’s important to give them what they need to be successful.”
When considering what changes to make, Yulish said now isn’t the time to cut corners.
“You can do what most landlords do with makeshift changes, but owning a commercial property isn’t supposed to be a cheap situation,” he said. “I’m not a fan of cutting corners or suggesting that. If you cut corners on something, it will come back and bite you later. You diminish the value that way, too.”
Coyne said it comes down to how landlords use the space.
“We’re jamming more people into less space, and in a sense, that means there is more office space available than when these buildings were built,” he explained. “It has all become more competitive because of that. So, to compete, you have to adjust. If you’re not spending money to do this, then you are going to be left behind.”
Yulish said landlords should also take a step back and look at the bigger picture. Before refreshing a property, it’s important to consider its location.
“This is the only exception to not be the nicest place in town,” he noted. “So, unless your location is in the best location possible, you’re going to have to do things to attract tenants that might not be normal or in the status quo. But, there is only so much you can do to a property. It’s all based on location.”