Office buildings need career plans – just like people
Successful people typically leave nothing to chance and recognise the importance of meticulous career planning. The same can be said for buildings: they also need a long-term strategy, one with a vision, extensive tenant management and a good instinct for trends.
Swiss pension funds should look beyond the national borders when it comes to real estate investments. Additional investments abroad help to diversify the real estate portfolio and reduce country-specific risks due to different trends and cycles in the different countries. Aside from market cycles (cf. our article on the Correction on international real estate markets), performance is also determined by property-specific cycles, which must be factored into each property’s asset management strategy.
The competition never sleeps
One example of property-specific cycles are tenancy agreement cycles. The administration of tenancy agreements requires comprehensive tenant management and involves regular contact between owner and tenants. For instance, when tenancy agreements are due to expire, tenants should receive proposals for an extension in good time. That’s because the competition never sleeps: big tenants with good financial standing are in demand and estate agents working for competitor buildings usually try to attract them to their location long before their tenancy agreement expires.
Owners are therefore well advised to keep a close eye on these tenants. Understanding their requirements and knowing their plans is crucial to ensuring a flexible response. Another part of tenant management is handling tenancy terms: Staggered expiry dates of tenancy agreements can have advantages, as there is a lower risk of significant rent losses. On the other hand, it can make the scheduling of refurbishment work more difficult. The rental cycle should therefore be aligned with the property’s life cycle.
Flight to quality: tenants have high expectations
Maintaining and increasing the value of office properties is another key aspect of effective asset management. Without intervention, properties age quickly. The drivers for ongoing modernisation are wear and tear, new standards and, above all, new trends and tenant requirements. In this regard, the industry refers to a “flight to quality”. Tenants expect high sustainability standards for buildings – they should be free of pollutants and equipped with energy-efficient building services. On top of that, there are standards regarding fire protection, emergency power and cooling.
Increasingly, companies are keen to offer an attractive working environment to get their employees back into the office. Among other amenities, this includes cafés, in-house fitness studios, in-house dry cleaners, spa-like shower areas and convenient bicycle parking. Many markets now also require in-house meeting and event rooms that can be booked separately.
Setting the building on a career path
Timing is of key importance when it comes to developing office properties. Owners should have a strategy in place around three years before major tenancy agreements expire. Ideally, permits and concrete plans should already be in place. To retain tenants, owners can approach them with a proposal, outline prospects and emphasise the benefits of the envisaged changes.
As well as quickly responding to new trends, owners should also have a vision and a career plan for their office property to define what the property should look like in ten years: What type of tenants should it have? How should it be perceived on the market? These considerations revolve around the unique selling points of the building. To ensure that they remain attractive despite the ageing process, properties require regular maintenance, care or even a complete refurbishment. After all, buildings must keep their health up — just like people.
Premium office space in the centre of London
The AFIAA Investment Foundation acquired the “Gresham St Paul’s” office building at 45 Gresham Street in London in 2009. Between 2018 and 2020, the property was extensively modernised and extended after the former main tenant moved out and the building became vacant. Today, it provides around 16,000 square metres of prime office space on nine floors. The ground floor has been upgraded with a new reception area, a public café and a business lounge, while the top floors feature terraces with a view of St Paul’s Cathedral. On top of this, the building was upgraded to the latest energy standards and now holds the second-highest BREEAM sustainability certificate. As a result of the renovation, prestigious tenants have come on board, particularly from the financial services sector. The building is fully occupied. https://greshamstpauls.com/
Are you interested in international real estate investments?
We offer Swiss pension funds both direct and indirect international real estate investments. For direct investments, choose the AFIAA Global investment group; for indirect investments, choose the AFIAA Diversified indirect investment group.
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