By Monica Moreira Audette, AIA, LEED AP, Associate Partner and Senior Project Manager at Margulies Perruzzi
A lot more goes into renovating an older Class B building into a Class A than just adding a coffee bar or flat screen TV in the lobby. If it were that easy, all Class B building owners would upgrade. A big part of the decision to renovate a Class B building is the owner’s appetite for risk and how far they are willing to go to achieve a higher rate of return on their property.
It is not a decision any owner can make quickly. Owners will have to methodically weigh the pros and cons of trading the safety and stability of a Class B building for the cachet of Class A. The indicators are nearly endless – tenant demand, the economic forecast, sector growth, businesses that are expanding and/or contracting, emerging space trends (open floor plans, high-end amenities), and changing work styles that require more flexible space.
Office, industrial, retail, warehouse and biotech space have different conditions and variables that cannot be compared across the board. For instance, renovating warehouse space in one region makes sense to accommodate the demand from large retail tenants like Amazon that have specific needs, while in another market it would be a poor investment. The same goes for biotech space – upgrading buildings in a bullet-proof market like Cambridge is a no-brainer but biotech tenants have very specific needs that make renovating a building a costly endeavor.
What to Weigh
Given that the conditions can vary so dramatically from market to market, owners need to look closely at both the micro and macro conditions before considering future renovation plans. They should avoid basing their decisions on what their neighbors are doing given that the building condition, access to capital and the type of tenant improvements will differ.
Converting Class B buildings to A in fail-proof or constrained markets reduces risk. Property owners and managers should pay close attention to market research for leasing trends and supply and demand. The vacancy rate of a property is a crucial factor in the decision-making process for owners who may want to stagger improvements.
Class B buildings in markets where there are high vacancy rates may have a better chance at adding value by making minor changes like upgrading mechanical and operating systems to increase their building’s efficiency rather than a full-scale renovation. If the building is in a market where there is weak demand for Class A space, staying put in Class B until there is a shift could be the best strategy.
Property owners whose buildings have not been properly maintained or have fallen into disrepair are unlikely to be able to justify retrofitting buildings with touchless, digital technology that will play a big role in landing a tenant. Property owners who are planning to retain assets for the long-term have more financial cushion to make investments that will pay off in the future, increasing rents and elevating the class of the property. Those in the game for the short-term who do not have access to capital will favor less costly facelifts over renovation, leaving the new owners the opportunity to add value.
Building owners and managers should enlist a team of experts who can assist in determining the best course in repositioning office buildings. Evaluating the real estate market, comparable properties, and tenant demand will provide a solid starting point to formulate a plan for repositioning a commercial property.
A Medical Makeover in West End
When asset manager DWS Group decided to renovate 50, 60, and 62 Staniford Street in Boston’s West End neighborhood to transform the 70’s era complex into a first-class medical office building they hired Margulies Perruzzi to outline the process from navigating construction with tenants in the building to the Boston planning process.
DWS’ goal was to improve the tenant experience, increase access and add high-quality building features near medical/research institutions such as Massachusetts General Hospital, Shriner’s Hospitals for Children, and Mass. Eye & Ear to attract new tenants.
We evaluated every detail and devised a design scheme that included reducing disruption to tenants to securing city approvals to increasing the building’s Planned Development Area.
Our strategy included connecting 50 and 60 Staniford Streets which increased the ground floor and first floor by 20,000 SF. It also created new space for medical office, dry research, and retail tenants.
The Staniford complex now features a 10-story medical office tower and a new, two-story medical office building with space for retail tenants. The investment by DWS created a premier medical/office space, increasing the value of the complex, and improved access to high-quality space ideal for medical office/retail users.
By Janet Morra, AIA, LEED AP, Principal and Partnerat Margulies Perruzzi
Launched in July 2020 by the International WELL Building Institute (IWBI), the WELL Health-Safety Rating is a concept whose time has come, especially as businesses, institutions and organizations strive to return to an updated version of pre-pandemic normalcy.
IWBI defines the WELL Health-Safety Rating as “an evidence-based, third-party verified rating focused on operational policies, maintenance protocols and emergency plans to address a post-COVID-19 environment now and broader health and safety-related issues into the future.”
The idea was forged during the pandemic’s first wave, one of the earliest results of IWBI’s Task Force on COVID-19. According to IWBI, “nearly 600 public health experts, virologists, government officials, academics, business leaders, architects, designers, building scientists and real estate professionals” participated.
The WELL Health-Safety Rating contains a subset of relevant features from the WELL Building Standard that were adapted for a facilities and operations focus. It promotes indoor safety by providing a means to guide, validate, recognize, and scale management of health and safety issues in shared spaces. IWBI states that “third-party review ensures integrity and consistency, and results in a WELL Health-Safety seal for buildings and spaces that meet the rating’s requirements, communicating leadership and a commitment to the health and well-being of the people who frequent the space.”
At Margulies Peruzzi, we believe that this rating system is to health and safety what LEED is to sustainable design, and that it will gain the same traction among design professionals and owners. Directed towards facility operations and management, the rating is applicable to all new and existing building and facility types across an array of markets and large and small organizations alike. IWBI cites some recognizable names among those that have achieved the rating: Prudential Center, Fairfax County Public Schools, Yankee Stadium, Empire State Realty Trust, JPMorgan Chase, T-Mobile, Four Seasons, Citi, and Brookfield Properties.
IWBI recounts numerous advantages to owners: attracting and retaining employees, clients, and investors; building brand equity through leadership and innovation; and promoting employee health and well-being and in doing so, maximizing productivity.
Program Features
The rating system examines more than 20 features across six main themes – Cleaning and Sanitization Procedures, Emergency Preparedness Programs, Health Service Resources, Air and Water Quality Management, Stakeholder Engagement and Communication, and Innovation. For a facility to earn a WELL Health-Safety seal, a minimum of 15 criteria must be met, including as many as three submissions under Innovation. IWBI provides collateral material, a detailed online guide, and an extensive checklist to help participants through the process. Like the U.S. Green Building Council’s LEED project certification, there is a cost attached to earning this rating. It ranges from a low of $2,730 for a small business at a single location to a capped high of $166,000 for a company with up to to 10,000 locations.
In another similarity to LEED, Green Building Certification Inc. (GBCI) in collaboration with IWBI developed a rigorous process for individual accreditation. Becoming a WELL AP (accredited professional) signifies advanced knowledge in human health and wellness in the built environment, and specialization in the WELL Building Standard.
As part of our firm’s commitment to workplace health and safety for our clients, Margulies Peruzzi supported interior designer Alison Buckley, Associate IIDA, in her successful quest to earn the WELL AP certification.
Workplace Research in the Time of COVID
The workspace is an important physical asset within which a high degree of ingenuity and productivity is enabled. Thus inspired, we launched our first workplace strategy research in 2016, drawing on more than two decades of working with countless companies to help them create optimal work environments. Research continued, and in early 2020 when the world as we knew it changed, we shifted our focus—much like IWBI’s task force—to examining the ramifications of COVID-19 on physical work environments and their occupants.
Kicking off a series of five reports that share current thought leadership on the nature of work and how it and office environments are evolving during this health crisis was Volume 1: COVID-19 and the Future of the Workplace, published in May 2020. It presents the results of a survey we conducted of thousands of industry professionals to gain an understanding of the virus’s impact on the physical office environment. We received more than 500 responses to several fundamental questions:
When asked what most excited them about the prospect of returning to their workplace, 90% of respondents cited collaborating in person again and reuniting with colleagues. Coming in second was accessing office resources and equipment (64%), followed by returning to a well-designed, ergonomic workspace (58%), and working in environment that allows them to focus (47%).
Regarding their concerns, 80% cited safety in common spaces, followed by social distancing in meeting and collaboration space (70%); work environment cleanliness (68%); interaction with the public, visitors, and vendors (66%); workspace density (60%); and air quality (38%).
Working from home provided valuable lessons learned. “Space to concentrate is important” garnered 87% agreement. Other feedback acknowledged the desirability of face-to-face interaction (83%); value of engagement with company culture and mission (82%); ability to be productive remotely (82%); importance of ergonomics (75%); and ability to manage teams remotely (73%).
The report features a 10-page section, “Re-Thinking Office Building & Workplace Design,” that contains product reviews and explores various options that align with WELL Health-Safety Rating features under Air and Water Quality Management, Stakeholder Engagement & Communication, and Innovation. These include MEP improvements; UV lighting for treatment of air and surfaces; screening devices and sensors; information technology; wellness standards that go beyond FitWel, LEED and WELL Building; social changes; furniture solutions; antimicrobial surfaces; infection control risk assessment; and HR strategies for remote and hybrid work.
Volume 2: Reshaping the Workplace was published in August 2020. It asks the key question, “What does the future of office design look like?” in a post-COVID future, and explores impacts on real estate, space metrics and ratios, new concepts in space design, and technologies for space management. Among the challenges that owners and facility managers can look forward to are increases in workplace utilization rates, safety protocols, and need of technology for collaboration; management of a reduced in-person population due to continued remote work; and restoration of employee engagement and culture. It was around this time that the concept of a hybrid work model began to emerge, which intersects with features under four of the six WELL Health-Safety Rating themes.
Rethinking the Corporate Office Building
With a total inventory of over 5.5 billion square feet of office space leased or available for lease in the United States at the end of June 2021, landlords are in the vanguard of building owners who must adapt their assets to support the health and safety of current and prospective tenants. Margulies Peruzzi’s Volume 3: Building Design Reimagined/How Will COVID-19 Affect Building Design? published in September 2020, provides practical guidance to landlords specific to market challenges, tenant needs, building improvements, and space management. The primary logistical and financial challenges we foresaw as tenants returned were the ability to comply with social distancing in common areas, the need to increase security and safety protocols, improving HVAC performance and outside air intake, providing hands-free options, and reductions in public transportation and on-site employees.
Predicting that tenants would have many questions of landlords, the report provided a substantial list that included “What WELL/LEED standards do you have in place?” We forecast that traditional building amenities such as serveries and fitness centers would take on new forms and procedures, and that other innovations such as refrigerated marketplaces and moving conference areas close to lobbies to reduce foot traffic through office spaces would become more common. Presented in two categories (existing and new buildings), the report contains recommendations for potential improvements to parking and building entrances; building lobbies and security desks; elevator lobbies; elevator technology; restroom layout and design; grab-n-go, cafes, and food pickup; markets; fitness centers; HVAC systems and the energy code; and building control systems.
The Path Forward
The shape of future office environments will be largely determined by three factors: the ability of company leaders to direct and manage change; the subsequent development of organization-wide policies concerning remote work, safety, and occupancy; and the financial implications of those policies on facility decisions. A successful transition from the peak pandemic work-from-home scenario to a return-to-office scenario will require a spectrum of expertise and depend heavily on corporate agility and flexibility. Features of the WELL Health-Safety Rating’s Emergency Preparedness Programs theme, in particular the development of emergency, business continuity, and healthy re-entry plans, have a direct bearing on future space planning and allocation.
Margulies Perruzzi’s January 2021 report, Volume 4: Post-COVID Workplace presents four workplace models that corporate leaders can adapt to their own company’s unique blueprint. They are traditional, flexible, balanced, and lean, and range in 25% increments from 100% of the workforce returning to the office in the traditional model, to 25% in the lean model. Each model comes with its own financial and logistical considerations, especially if more space is needed to accommodate social distancing. The graphic below demonstrates how the models compare in terms of cost and space.
How much space do you need?
The New Hybrid Environment
Long a staple in certain high-tech industries and made possible through advancements in digital technology, COVID-19 has pushed the hybrid work environment model to the mainstream. Now, as the world grapples with the delta variant and new facts about its transmissibility to and by the vaccinated, Margulies Perruzzi’s just-released Volume 5 Workplace Strategy Report: Embracing the Hybrid Workspace affirms the logic of transitioning from a traditional to hybrid model. A survey of 8,600 people across multiple business sectors revealed that 44% of workers plan on being in the office three days a week, and 25% plan on two days. Only 9% responded that they would return to a pre-pandemic office presence.
How many days per week do people intend to work in the office?
Corporate leaders are becoming more receptive to the idea that work environments must embrace change as a constant and evolve in response. Catalysts include an increase in workplace utilization rates and safety protocols; restoration of employee engagement and culture; continuation of remote work and subsequent management of a reduced in-person population; and an increased need for collaboration technology and training.
Planning a return to the physical office under ever-changing conditions and advisories from the CDC is yet one more challenge for C-suite executives, facility managers, and employees. The numbers are significant. According to the U.S. Bureau of Labor Statistics, as of July 2021, there were 153.6 million people aged 16 and over in America’s workforce, of which 82.2 million are office based. Of those, 13.2% of full-time workers in all industries engaged in remote work. Although this is down from a high of 35.4% in May 2020, it nevertheless represents more than 10 million workers. That’s a lot of people, square footage, furniture, equipment, and associated costs to consider while simultaneously prioritizing health and safety.
Managing Change
Change is difficult, but meaningful change cannot happen in a vacuum or without confident leadership. Approaching it in an analytical and positive manner can diminish fear of the unknown and promote inclusivity. Informed corporate leaders are adopting sequential steps for creating a practical, sustainable strategy for their companies, the first one being the creation of a framework that identifies employee type profiles and their correlative space needs.
How many assigned and unassigned seats do you need?
Once the framework has been established, the next steps are to:
Determine corporate willingness to change and how to build consensus around change.
Set guidelines for remote work and HR policies.
Confirm the financial implications.
Introduce property technology to manage space utilization on an ongoing basis.
Develop architectural, design, and engineering principles.
Form an implementation plan.
There are many different options available for implementing a safe return to the office, but there is no “one size fits all” solution. The most successful solution will be that which is uniquely tailored to a company’s business model, strategic plan, and corporate culture. Flexibility of both thought and design are the keys to cultivating a successful hybrid work environment.
Drawing a final correlation to LEED, many companies opt to have their facilities designed to various LEED certification levels without pursuing registration. The same approach can be taken with the WELL Health-Safety Rating. Although we advocate participation in both programs, only an owner can weigh the value of either investment against their project goals and budget.
Health & Safety Efforts Backed by Science
Program participants are in excellent company. According to IWBI, globally there are 20,950+ assets enrolled totaling 1.8 billion square feet, with 13,340+ and 1.3 billion square feet rated. At the end of the process, the WELL Health-Safety seal is a tangible and visible reminder that your building’s health and safety efforts are backed by science and validated by a third party. Seeing the seal outside tells employees, visitors, clients, and customers that they will be safe inside.
