It’s All About the Green Space in Office Space

We’ve addressed the topic of how the office users are changing post pandemic. Long story short is that the office needs of businesses shifted to smaller spaces being more in demand than massive corporate users. Investors holding office properties in their portfolio have got to be creative to keep tenants wanting their space and paying top dollar for it. Strategy here is important.

Let’s talk about the little and big things that make a difference in a prospective tenant choosing one space over another, even if it comes with a bit higher cost. Some building features can not only convince tenants to keep leasing the space, but get them to pay a premium for it.

According to Costar—roof terraces, sky lounges and outdoor courtyards with plenty of seating options, as well as fully outfitted fitness centers, are sparking more deals and driving rent growth. Properties with these types of features have collectively leased about 23.5 million more square feet than was vacated since the onset of the pandemic in early 2020. Meanwhile, other urban, top-tier properties have lost upward of 50 million square feet.

All types of outdoor space contribute to the strongest rent premiums. We have seen premier properties that have onsite dog park area for workers to bring Fido to work with them. Even high buildings WITHOUT outdoor green space do not fetch the premium that buildings with outdoor space do. Buildings with a gym, for example, showed only a 0.5% rent premium compared to other similar properties, while those with a fitness center stocked with features such as locker rooms, showers and other convenient perks generated a premium more than five times larger. What gets an even better premium you ask…an outdoor yoga area.

To be clear, upgrading a building to include one or more popular attributes probably won’t be enough to boost occupancy levels or drive meaningful rent growth, according to CoStar analysis. Other factors such as location, proximity to public transportation or a building’s age also come into play, and what’s more, the pool of tenants looking to shed space is still larger than the those looking to expand.

That has pushed the national office vacancy rate to a record high of nearly 14%, and new leasing activity has fallen to about 15% below the levels reported in 2019. So if you are looking to make your office property more valuable; think creatively and think Green!

Here is a snapshot of what features help you see a return on your investment.

image credit: Costar