Repositioning Your Commercial Property
Chicago, IL | September 24, 2018
WHEN SHOULD A COMMERCIAL PROPERTY OWNER CONSIDER REPOSITIONING THEIR OFFICE BUILDING?
Property owners should consider repositioning their buildings when leasing activity has been lagging, you’re consistently losing deals to more modern buildings with better amenities and want to stay competitive, or when you want to increase the value of your building and charge more per square foot.
WHAT TYPES OF OFFICE BUILDINGS ARE GOOD CANDIDATES FOR REPOSITIONING?
In the past, Class C landlords were the ones you’d expect to see doing extensive renovations to “level-up” and compete in the Class B realm. Now, many Class A and B building owners are spending significant capital to create statement lobbies, comfortable, modern lounges, full-service fitness centers, luxurious outdoor space, and any other amenities that will give them an edge over the competition. This means that no matter what class your property is in, repositioning may be a good long-term option to stay relevant in the market.
WHAT ARE THE MAIN BENEFITS OF REPOSITIONING?
In addition to increasing overall value, repositioning energizes your leasing program by giving the market a fresh look at your improved asset and creates new motivation for brokers and tenants who might otherwise not consider your building. Plus, repositioning is a great hook for a rigorous marketing campaign promoting your property and its renovated features.
HOW CAN LEASING BROKERS HELP OWNERS PLAN AND EXECUTE AN EFFECTIVE REPOSITIONING PROJECT?
Leasing brokers are market experts, know your competition well, and know what other brokers think about your building. A leasing broker will know which of your competitors has recently repositioned their property and what they’ve changed to keep and attract tenants. In some cases, your broker can arrange a walk-through of a recently repositioned building so you can see their new renovations firsthand.
Your leasing broker will also know the latest repositioning trends and can schedule walkthroughs of your property with architectural firms who can offer further suggestions regarding what makes sense for your building and your budget.
MBRE’s Leasing team led repositionings for One LaSalle and 333 N. Michigan Ave., among others. Each project included modernizing building systems, refreshing common areas and lobbies, and developing an array of amenities to attract tenants and brokers. In both of these projects, renovations were done while still preserving the historical integrity and landmark status of the property.
One LaSalle’s most recent renovation in 2016 that included the addition of its amenity floor, The Landmark, reinvigorated its standing in the market and brought occupancy from 72% to 87% in 18 months.
WHAT IS A TYPICAL REPOSITIONING STRATEGY, AND WHAT ASPECTS OF THE BUILDING SHOULD OWNERSHIP PRIORITIZE FOR THE PROJECT?
A landlord’s top priority is no longer just checking the boxes, as tenant expectations have dramatically raised the bar. Basic amenities like fitness centers, conference space, and tenant lounges are musts. Outdoor space has also become a very popular amenity among office buildings and tenants, and is worth the effort to add to your property, if possible.
One LaSalle’s renovation was focused largely on creating a centralized amenity floor that now serves as the nucleus of the building. The space includes the Office of the Building, fitness center, conference rooms, and a lounge area decked out with lots of comfortable seating and tables, a large TV, games, a record player, and a modern rustic vibe.
Located on the building’s 25th floor, The Landmark also includes a terrace that overlooks the Loop and is fitted with Adirondack chairs and patio tables with umbrellas. On any given day, you can find One LaSalle’s tenants having meet ups or group lunches in the lounge area or doing yoga on the terrace. 333 N. Michigan also recently built out outdoor space as a new amenity for their tenants which is set to open later this month.
Having food options available onsite is also a big perk for tenants who want convenience without leaving the building. Coffee shops, food halls, and other retail options, such as drug stores, are a big sell to tenants and an important component of making your building desirable.
A good example of this is the Tavern Club at 333 N. Michigan, a restaurant, bar, and event space located on the landmark building’s amenity floor. The Tavern Club offers happy hour specials for tenants, hosts after work functions, provides catering, and is available for private events. Tenants can access all of these services without having to leave the building.
Your building’s lobby or main entrance is also an important element to prioritize. Your main entrance is one of the first impressions tenants and brokers get of your building, setting the tone for prospective tenant walkthroughs. Therefore, your lobby area should be inviting and have adequate seating. Your security personnel should be equally as inviting, helping move along traffic flow while also making tenants and visitors feel comfortable.
WHAT ARE THE MOST COMMON CHALLENGES OWNERS FACE DURING THIS PROCESS?
As in anything, the most common challenges owners face when repositioning a building is staying within budget while still creating spaces that wow tenants. If you’re working with a tight budget, consider building out amenities in a space with plenty of natural light and good views, if possible, to counterbalance more modest finishes, equipment, and furniture.
Another challenge owners often face is having to balance taking potentially leasable space off the market to create an amenity center. You probably don’t want to use your highest quality floor for amenities, but you also don’t want to use a space with little to no desirable features. Locating your amenity center on a middle floor makes it most easily accessible to all tenants. Narrow your options down to this section of your building, carve out an efficient footprint, and go from there.
HOW LONG DOES REPOSITIONING AN OFFICE BUILDING TAKE, AND WHAT’S THE AVERAGE COST?
How long your repositioning takes and how costly it is depends on the extent of the renovation, but most repositionings take about one year, including planning, permitting, and construction time.
WHAT’S THE BEST WAY TO PROMOTE THAT YOUR BUILDING IS BEING, OR HAS BEEN, REPOSITIONED?
There are many ways to promote your newly repositioned building, including getting press in local commercial real estate publications, announcements on your property’s social media, broker emails, and advertising on platforms such as CoStar and LoopNet. For in-person promotions, building owners often host broker events or offer incentives for qualified tours that include a walkthrough of the new space. Installing signage on the exterior of your property with images of your new space is yet another way to get people interested in your new renovations.