Post-pandemic office leasing, what is a building owner to do?

The state of the office leasing market in suburban Chicago has dramatically changed post pandemic, and office building owners are facing new challenges to retain and attract new tenants.

Many companies now are continuing to allow employees to work from home, or implementing hybrid models allowing employees to come to the office only two to three days per week. As a result, many companies are downsizing their needs for office space, or vacating office space all together.

The dynamic shift in how businesses are working and what their office needs are is forcing many landlords to implement new strategies and "think outside the box" ideas to attract tenants to their properties. In order for companies to entice their employees to come back to the office, they are looking for higher-quality, updated space with premier amenities.

Therefore, office building owners are going to need to upgrade their buildings to make it a more attractive environment. With so much office vacancy in all of the Chicago suburban markets, office properties really need to stand out from other buildings. By providing move-in ready, updated suites and attractive building amenities, it can significantly increase interest.

First impressions are key. Common areas need to be fresh and clean, adding some nice paintings, and incorporating updated flooring and neutral paint colors helps create a good impression.

Tasteful décor is strongly encouraged. A well-maintained building is apparent when tenants first walk in the front lobby. Amenities that are attractive to tenants include fitness centers, on site delis or upgraded food vending options, conference room facilities, and even covered parking.

Companies are looking for opportunities to encourage their employees to come into the office, offering a covered parking space for the employee of the month is one example of how they are doing this. Good amenities located on property make it much more convenient for employees and help create a comfortable atmosphere to work.

Tenant retention is vital in today's office environment. Owners should think about implementing a strategy to retain the tenants they currently have. Providing flexible lease terms and incentives helps with retention. Existing tenants are looking for better financial terms, especially with so many opportunities available for lease.

Owners and landlords may need to make significant concessions to keep their existing tenants with office and building updates. Tenants are also looking for "tenant experience technology" with the use of apps. Even hosting a "tenant housewarming party" when tenants move in allows them to connect with other tenants in the building. A food truck or lunch event for tenants several times a year is a great way for tenants to interact and get to know the property owner and management.

Office owners are also doing building conversion, which is becoming a popular trend. Multifamily and industrial have been the most common re-use of outdated office buildings. Demand for multifamily housing is higher than supply in the USA's largest cities.

Since 2016, CBRE tracked 89 completed office-to-multifamily (OTM) conversions across 26 major U.S. office markets. The projects collectively reduced office inventory by 16.4 million square feet and added over 14,000 apartment units. Record-low apartment vacancies and sustained, elevated rent growth have made OTM conversions attractive to opportunistic developers.

Adapting a structure rather than building a new one can save time and sometimes can be more cost effective. Often, the construction process for adaptive reuse is 25% to 40% faster since the site is already under control and entitled.

Meanwhile, renovation costs for adaptive reuse are reduced by as much as 40% compared to new construction. However, there are many variables, mostly the construction challenges, in order to convert properties, including plumbing renovations, HVAC systems, electric, windows, etc. that may make a conversion a non-feasible option.

Overall, it is a challenging office market. Owners must adopt a strategic plan to update their buildings, offer incentives or even look at converting their properties to a new use when feasible. This will help ensure the value of their properties are maintained even through the ups and downs of the office market cycles.

• SVN Chicago Commercial's Suburban Next Level Team is an all woman Commercial Real Estate Team with a primary focus in leasing, sales and investment sales for office, industrial and retail. The team consists of three advisers - Jennifer Hopkins, Sharon O'Leary and Olivia Czyzynski, with over 60 years of combined experience focusing in the Western and Northwest suburbs of Chicago, providing professional brokerage services with a client first focus.