“Repositioning”: Giving a Multi-Tenant Office Building a New Lease on Life

While most prospective tenants are looking for good deals, selecting a home for their business does not boil solely down to money.  Tenants want to work in a building that they can be proud of, that attracts both customers and high-quality employees, and is a pleasure to arrive at each day.

Competition to attract tenants can be tough.  Repositioning is a strategic decision that adds value to a property’s worth with the goal of increasing existing lease rates at renewal time, and attracting new tenants at higher rates immediately.  A repositioned building is able to compete equally with newer properties in the same usage category.

Most repositioning includes either the renovation of Class B and C buildings to Class A buildings, the modernization of Class A buildings, the conversion of industrial space to office space, or the adaptation of single-tenant to multi-tenant buildings.

Over the years, I’ve assessed hundreds of multi-tenant office buildings for owners, and provided recommendations on aesthetic upgrades, with prioritizations, a proposed schedule, and cost estimates.  Areas that often need improvement are:  Landscaping and exterior hardscape, signage, storefront and main entry, the main building lobby, elevator lobbies and cabs, corridors, and restrooms.  First impressions are the most important, so the main entry storefront, the surrounding landscaping, and main lobby are usually at the top of the priority list.

If a building was built or remodeled before 1995, the building’s image and amenities are probably outdated.  Moreover, many tenants these days desire state-of-the-art infrastructure and green design elements including lots of interior glass for daylighting, highly efficient light fixtures and HVAC systems, and healty, non-toxic finishes.  It’s important to consider the type of tenants an owner wants to attract in determining the strategy.  Other important factors are the property’s value, location, and other commercial building offerings in the vicinity as tenants look to balance the best deals with the best offerings.

Most often, repositioning is not an all or nothing approach, and involves upgrading only key elements of a building where it’s most needed or where the biggest impact can be made.  With preliminary cost estimates for the various recommendations, the return on the investment can be calculated based on the estimated increased lease rates.  Often, simply adding an area rug, plants, artwork, and new furniture in the main lobby can add the splash that is needed in the short-term when the funds are not available to do more.  On the higher end of the scale, a new building skin or curtain wall, or amenities such as a fitness center and a restaurant may be in order to attract a certain type of occupant, although this level of renovation is not nearly as common as the smaller ones.  It is typically the privately owned companies that tend to invest the most in upgrading their buildings on a regular basis, and these buildings are the ones that demand the highest lease rates.