Indoor farm wall © Greg Davison
Office occupier requirements are ever evolving, meaning that what the market deems to be standard provision itself changes with time.
For example, high-quality end-of-journey facilities such as secure cycle parking, showers and lockers were a nice option rather than a standard and essential provision ten years ago.
Today, however, any building being let without these would be heavily discounted by most tenants, reflecting the new importance of such amenities.
In the challenging market conditions currently prevailing, with the demands of occupiers becoming ever more sophisticated, clients are asking us to provide increasingly creative ways to maximise buildings' appeal to occupiers.
Consequently, a new wave of enhancements is required for their buildings to be deemed best in class.
Communal facilities increase workplace appeal
Shared building amenities that foster a sense of community are now top of the agenda. There are three key reasons behind this.
First, after the pandemic, occupiers are trying to attract employees back to the office of their own accord, rather than ordering them to come in.
Second, employees' expectations of what a workplace should offer have changed dramatically over the past five years. Research has shown that they are 58% more likely to work in the office five days a week if there are free benefits on offer there.
Finally, forward-thinking, proactive owners are seeking to support occupiers and employees by providing communal amenities.
The provision of such amenities and the consequent increase in office attendance rates has tangible benefits for all parties.
For occupier businesses, the benefits include:
- improved productivity
- strengthened company culture
- improved employee and team dynamics
- reduced staff turnover
- increase in value derived from office space.
For their employees, meanwhile, the advantages include:
- free benefits, such as gym membership, saving expense elsewhere
- a sense of community and inclusivity
- the chance to learn and develop new skills.
Finally, so far as owners and their investment are concerned:
- occupiers are less likely to downsize or depart at lease-end
- the risks of losing income and of subsequent refurbishment, void and reletting costs and rent-free periods are reduced
- cash flow is more stable and predictable
- higher occupancy levels enable rents to be increased for new lettings and renewals, improving net operating income across the asset and hence valuation.
Farmstands in office space © Greg Davison
Asset managers urged to convert unlettable space
Some buildings have entirely unlettable space or space with little or no value, such as basement storage and disused plant rooms. It should therefore be comparatively straightforward for asset managers to justify conversion into a communal building amenity to the relevant decision-makers.
For buildings without unlettable space, the decision is more difficult: can the loss of a net lettable space to building amenity be justified?
Despite the benefits on offer, owners often find it difficult to reassign potentially lettable space to use as a building amenity, or indeed approve the funds required. They tend to cling to the – often remote – possibility of letting this space on a standard lease at a reasonable rent.
Asset managers therefore need to present evidence showing the return on investment. They should demonstrate that the value added to the rest of the building will outweigh the loss of the area and the cost of providing the amenity.
This can usually be done by a suitable rent increase, and capitalising this across the building.
This strategy will not be suitable for every building; but for those that have net lettable space that seems impossible to lease, this approach should certainly be considered.
If done correctly, the void costs for difficult-to-let spaces can be removed from the asset's cash flow and often be recovered through service charges. In turn, this can support marketing efforts, secure new lettings and renewals and increase rents across the building.
Office gym facilities © Greg Davison
Fitness and farming exemplify communal space benefits
Amenities that foster community, increase employee attendance and offer some of the benefits discussed can take several forms.
For instance, health and well-being are more important now than ever before, and jobseekers consider both the cost and convenience of the health and well-being benefits potential employees offer.
If an employer can provide high-quality health and well-being space free of charge in an office building, that can be a significant benefit for existing staff and future recruits.
Nutrition is another key component of health and well-being and has a greater focus on than ever before. Some landlords are now providing indoor farming facilities in communal areas to meet this need.
These indoor farms allow occupiers of a building to grow their own produce, providing a hands-on educational experience, which creates a sense of community among employees.
As well as growing produce, staff get to harvest and take freshly grown produce home free of charge.
One indoor farm provider also offers cookery lessons on site, to help occupiers make the most of their produce. This offers rewarding social engagement activity and brings together occupiers from a wide range of tenants within the same building.
Growing facilities can be placed in communal areas such as receptions, so need not require any loss of net lettable area, and the costs are usually borne by service charges.
In addition to the financial, health and social benefits, central amenities such as these offer another advantage in that they can be included in the assessment of a building's environmental, social and governance accreditations.
They can improve ratings across BREEAM, WELL, Fitwel and ACTIVESCORE and MODESCORE among others, boosting tenant demand, rents and competitive positioning.
'If an employer can provide high-quality health and well-being office space free of charge, that can be a significant benefit for existing staff and future recruits'
Proactive, progressive approach offers returns
Many of us will have worked on buildings with areas that have lain vacant for five or even ten years. Rather than still hoping that the space can be let in a traditional manner, it is best to take advantage of it by using it as an amenity that benefits the occupants of the rest of the building.
While for some owners the process of doing so may be daunting, reassigning space to a building amenity, or indeed finding the funds required to create one, can offer significant financial and non-financial benefits for a building and its investors.
This can change the fortunes of assets that are struggling to reach full occupancy or maximise their rental potential.