Should We Refurbish Instead?
As the office markets turn and vacancy climbs, the better buildings slowly lease up and the lesser quality buildings struggle. Like clockwork the narrative turns to repurposing the buildings that are struggling to other uses. But is this real and is this the answer?
Repurposing works when the sell or purchase price allows it and that only occurs when valuations drop like they did in the early 1990s.
But what if these Lessors upgraded their buildings so they don’t have to lift rates to compete against the upper echelons of the market? Refurbish to a degree, not to compete against the best buildings.
Surely older buildings can be refurbished on a cost effective basis. Their chances of leasing up the space at rates well below the better buildings are much higher.
If the building is in the CBD, it does not need to have all the amenities of Premium buildings within the building because the CBD has that amenity all around you – all within a 5-7 minute walk. If the building has good natural light, it will lease.
There is a cost but lower the scope and offer competitive rents in a building that suits smaller tenants. Lowering the scope reduces costs and time. This is on the proviso it is done tastefully and properly.
It’s the tenant’s perspective that will be most important over the next 3-5 years. The largest cohort of tenants are small and cost conscious so why not cater to them and fill up older refurbished buildings.