A recent study found that digital connectivity is a driving factor in achieving higher rents and ROI, especially from tenants occupying Class B office building spaces in the technology, advertising, media, and information (TAMI) industries. Building owners of Class B properties should consider improving internet connectivity as a way of raising rental revenue.
After examining rents in 350 office buildings in Manhattan, Class B commercial buildings with digital connectivity certifications from WiredScore were able to demand nearly 7% higher rents compared to their peers. Depending on the building’s certification level rents increased at an average of $59 to $72 per square foot and Class B properties which received 3 out of a possible 5 Stars on CoStar’s Building Rating System generated up to $7.50/ SF in extra rent compared to non certified properties, when controlling for closeness to subway and building rating.
Research also indicated that office space tenants in the TAMI industries were most likely to adopt digital connectivity and were more willing to pay higher rents for best-in-class connectivity to attract and retain top talent. TAMI tenants comprised nearly 13.3% of the highest rating digital certification ratings in Manhattan’s buildings.
Digital connectivity, common area improvements increase ROI in Class B properties
Class B buildings currently represent an underserved value for owners and developers due to the relatively lower barriers of entry and vacancies and economical prices. While is an existing oversupply and stagnant demand for expensive Class A properties, Class B buildings allow developers to implement location-specific amenities and work-life convenience for an evolving millennial workforce and recoup ROI from operational efficiency.
Today the iconic Ford Factory Building in Los Angeles, once used to manufacture Ford Model T automobiles, serves as a benchmark example of how high-quality adaptive reuse transitioned from Class B physical real estate into premier Class A product.
In Los Angeles’s South Bay enclave, which has a large stock of inventory formerly used by defense contractors was purchased by Invesco Real Estate in partnership Second Street Ventures in 2012. The investors were able to effectively re-conceptualize the buildings into precisely what Los Angeles’ prevailing creative tenant seeks.
One of the central components of re-use is the provision of a robust digital connectivity infrastructure and research has shown employees who perceive their workspaces are being innovative and technologically advanced are more like satisfied with their jobs. For this reason, the provision best in class connectivity is becoming one of the best ways to attract TAMI tenants to well-located Class B commercial office buildings.
Augmenting Class B buildings with soft-value such as adapting office spaces with natural light, open common areas, polished floors, rooftop gardens, green spaces, and other sustainability features important to millennial employees are ways of attracting more TAMI tenants.