Re-purpose of the office

Making sense of current events on the future office space user needs is not an exact science. Will corporates change the metrics to space multipliers per role? Will offices become 24/7 assets instead of 9 to 5 with staggered use? How will landlords and tenants provide a healthy environment? Is all this effort wasted when a vaccine is found?

In the last few weeks both Harvard Business Review (What makes an Office Building “Healthy” by J.G. Allen and John D. Macomber) and The British Council for Offices have published their thoughts on this. Common themes include better occupier practices and improved ventilation and air quality. This suggests the first post Covid-19 impact will be positive: closer collaboration between landlord and tenant which will also most likely extend to discussions on increased leasing flexibility.

As we wait for users to return to the office, we are sure of one thing: It is uncertain just how the offices will be used differently and which offices will be inflexible to respond to new occupier needs. These two “known uncertainties” are introduced below.

➢ New Office Way of Working

➢ Re-purpose the Office – How Much?

“Arcadis is dealing worldwide with the issue of construction and technological modifications of buildings in terms of their safe use during such a various pandemic restrictions. Based on this, we have prepared an analysis of relevant recommendations for our real estate clients, including the calculation of the benchmark price impact of these adjustments. The result of these measures / solutions are generally the operational and construction modifications to parts of commercial real estate assets that may have a significant impact on the uninterrupted use while ensuring all operational and business needs of the tenants.

Part of our considerations may be to  responsible review a feasibility of a complete  repositioning of some real estate asset (e.g. from administrative to residential use etc.), because after the economic evaluation, the current function of the asset may lose its initial commercial condition in a long term and „big picture“ view. With this improved flexibility of our clients, Arcadis is also ready to support with its team of experts,” says Jan Podzimek, Head of Financial Institutions at Arcadis.

Some thoughts reflect initial areas of change for both the tenant and landlord to review. As always these discussions will start from the user experience needs so the sufficiency of these ideas will vary from occupier to occupier.

Need to re-shape office to reduce risk of uncontrolled human interventions

• Security controls re-used for cleaning controls
• One-way circulation flows impacting fire corridors
• People meet areas where interaction with transparent screens takes place
• All standing meetings to improve space and reduce “touch points”
• Office buddy system to share desks and equipment in controlled way
• Self-clean facilities with ready wipes and protective equipment in reach

   

  Improving air ventilation and treatment (Mechanical Plant, Fittings and Equipment)

• MEP maintenance systems to be upgraded to include air purification and sanitization systems together with air temperature and quality measurement. These systems can also act as real time disinfectants
• Shared touch technology replaced by increased voice enabled or other touchless systems in high traffic areas like doors, toilets, meeting rooms and common areas
• Increase use of antimicrobial surfaces and furnishings in busy people locations
• Handwash chat will be as important as the coffee machine chat stations; Sanitizing gel and cleaning stations must be easy and natural for employees to use
• FM protocols to enhance cleaning protocols on office operating behaviour and cultural change around cleanliness within the workplace.

Based on a Western Europe CBD office asset, a landlord or occupier should budget approximately €30/m2* for a building refresh to reset to new working practices. However, this excludes any adjustments to the ventilation and MEP equipment. When this is added into the scope, the costs could rise to as much as €500/m2. (* Costs exclude taxes & professional fees; based on office asset in CBD districts in prime Western European cities, excluding London)

For some assets, re-shaping the office and/ or improving the ventilation and air treatment will be insufficient to maintain the rental yield. Landlords and investors may be faced with the more disruptive changes to their assets, in the form of re-purposing the asset. Given the likelihood that most CBDs are in great “liveable” locations with excellent transport links, part conversion into residential and wider mixed-use assets is an option. We expect increased flexibility from planning authorities to accommodate these changes, where improved community benefit can be shown.

The fog on what the value of assets are, post Covid-19 will be lifted within the next few months. At that moment, any party holding debt against an office asset will take a closer interest in tenant activities. It would be prudent in that landlords and investors have some options to test against the various scenarios. That way, investors will be better prepared for the Known Uncertainty of a post Covid-19 Office Asset.

Key takeaways:

• Office use will change;
• Foggy outlook on what change will happen and where;
• Valuations will be clearer by Summer 2020;
• Plan now for all valuation eventualities;
• Position with funders development risk for office re-purpose;
• Get ahead of competitors by future-proofing asset now