By Gary Richetelli
Commercial landlords are not passive investors. Anyone who tells you otherwise is either willfully ignorant or working an angle.
Maximizing your commercial office property’s value—and income potential—takes a lot of work. You can delegate a great deal of the day-to-day to your office management team, but the big stuff requires closer attention. You can’t afford to get it wrong.
Redesigning and renovating part or all of your commercial office property is a great way to boost its value. Unfortunately, it’s a pretty high-stakes affair. Poor or incomplete work can actually reduce your property’s assessed value and income potential.
These five tips aren’t the final word on successful office redesigns, but they’re a helpful starting point for first-timers. Before you tear into any walls, you’ll want to consult an office design pro (if you don’t already have one on staff) and study comparable projects in your area.
1. Consider the Property’s Purpose and Promise
Start by evaluating your property’s strengths, weaknesses, and purpose, beyond the basic stuff that you can answer in your sleep. Consider:
- The property’s current utilization: occupancy rates, tenant activities, urgent issues (structural problems, mechanical system issues)
- The property’s location and relationship to the built environment: where it’s located relative to comparable properties, local zoning codes and the pliability of zoning authorities, parking, transportation connections, access to amenities
- The property’s tangible and intangible assets: historic value, noteworthy interior or exterior amenities
- The property’s suitability: how well it serves the needs of current and future tenants
- The property’s flexibility: potential financial or logistical constraints (if any) on ambitious renovations
Your answers to these and other questions will determine the scope of your project.
2. Focus on Curb Appeal
First impressions matter. Though the meat of your renovation project is likely to take place inside, beyond the public’s gaze, the value of an attractive, coherent exterior can’t be overstated. This is especially true in pedestrian-oriented districts, where everyday passersby study facades up close.
Even if it means simply updating your signage and refitting street-facing windows, an exterior spiff-up can pay dividends. And you might not have to pay the full cost out of pocket. Popular tax deductions for landlords may apply to exterior work, particularly if it’s energy-efficient. Many municipalities and business associations offer facade grants too, reimbursing part or all of the cost of street-facing upgrades.
3. Emphasize Existing Assets
Exposed brick? Antique lighting? Ornate tiling? Vintage steel or woodwork?
Put assets like these to work in your favor. Rather than knock out an exposed brick wall or update old-school lighting with sterile, energy-efficient alternatives, work your redesign around the building’s singular features. There’s little downside to finding out once and for all what’s above that drop ceiling.
4. Don’t Skimp on Repair and Replacement Work
Attractive facades and appealing interior design elements might get prospective tenants in the door, but practical improvements actually lock down the lease. Leave more than enough time and money to address the urgent issues you identified before beginning your project. Pay special attention to problems that could impact tenant safety or comfort, such as failing mechanical systems, rickety flooring, non-compliant accessibility features, and the like. If your primary concern is bringing your property in line with comparable office spaces in your area, take care of this stuff before addressing aesthetics.
5. Delegate to Your Tenants
If you lack the resources or attention to manage a major office renovation project (or manage the contractors responsible for that project), consider delegating some or all of the work to your tenants.
You can do this in a number of ways. One of the most common is a tenant improvement allowance (TIA), a per-square-foot allowance that tenants can use to update their floor space as they see fit. This is an effective strategy for small-scale and partial redesign projects, and the work required on your end is minimal. You can also adopt a more informal rent credit strategy, though this approach is vulnerable to cost overruns and after-the-fact disputes.
Remember: You Answer to Your Tenants
No matter where your office property renovation takes you, never lose sight of the most important part of the equation: your tenants.
If you’re undertaking improvements while your property is partially occupied, you need to go above and beyond to accommodate your tenants. Don’t assume that the long-run promise of first-rate office space is enough to divert their attention from the inconvenient here-and-now. The last thing you need to deal with during a complicated and expensive renovation project is a gaggle of disgruntled tenants.