Office Owners Consider More Expensive Upgrades As Slow Return To Work Continues
The return to the workplace has been slower than many office owners expected, leading them to consider costlier measures to make employees feel comfortable entering their buildings.
In the early days of the reopening process, owners implemented quick solutions, such as hand sanitizing stations and social distancing signage, but the number of employees coming back to the office has remained lower than many expected.
As owners look for ways to make employees more comfortable entering buildings, and as it becomes more evident that the pandemic will have long-lasting effects on everyday life, market experts say owners are beginning to look at more substantial investments in upgrading their buildings.
MRP Realty Senior Managing Director Allison DiGiovanni said the return to work has been slow, with buildings still around 10% to 15% capacity, so it is important for landlords to show tenants they are making buildings safer.
"You've got to feel like where you're coming to work is up to speed and taking every precaution they can," DiGiovanni said. "If you have a landlord that is engaged and encouraging, then the tenants in the building will feel safe and the building will be safer."
The measures now under consideration include HVAC upgrades, temperature checking stations, operable windows and lobby storage lockers, experts said.
While these upgrades may help tenants feel safer about coming to work during a pandemic, they can be much more expensive than the minor changes owners have already made. Upgrading an HVAC system, for example, could cost a building hundreds of thousands of dollars upfront, and the air filtration changes could also increase a building's utility bills by more than $100K annually.
During an economic recession when rental income may be less stable, the cost of these measures is leading owners to take their time in making decisions.
HOK Director of Workplace Kay Sargent, who oversees a practice that designs around 55M SF of office space every year, said she advises clients not to make investments in any measures they are not prepared to live with for the long term.
"The question is, 'What are going to be some of the lasting ramifications of this, and what is worth putting your money in?'" Sargent said. "The smart money for most people is to be cautious and see where this lands because we don't have a lot of money to spend and get it wrong."
One of the costliest measures many landlords are considering is upgrading their heating, ventilation and air conditioning systems, as tenants are more concerned about the flow of air through their offices.
The high cost of some HVAC upgrades, combined with the uncertainty about the effectiveness of changing air ventilation systems in stopping the spread of the coronavirus, is leading landlords to delay their decision-making.
"From a mechanical standpoint there are a ton of ideas out there about what could be done," Sargent said. "Some are very expensive, some are cheaper, more local fixes, but that's one of the ones that before people are spending the money, they want to make sure they're doing the right thing."
The types of coronavirus-related HVAC upgrades recommended by the American Society of Heating, Refrigerating and Air-Conditioning Engineers cost about $3/SF, Boland Sales Team Leader Kevin Bradley said. Boland, a commercial HVAC vendor, is implementing these upgrades at its own building in Gaithersburg, Maryland, which is expected to cost roughly $300K for the 100K SF building.
The ASHRAE-recommended upgrades Boland is implementing include installing dynamic air filters and UV lights inside the filtration system that kill viruses, Bradley said. In addition to these upgrades, the recommended air filtration changes would increase a building’s monthly utility bills.
Carbon Lighthouse, a company that uses sensors to determine a building's energy usage and create savings, estimates that for a 120K SF building, implementing a full range of coronavirus-related precautions would increase the annual utility costs from $230K to $370K. These precautions would include making the ventilation systems run more frequently and to their full extent to increase the airflow through a building.
"We have clients facing demands from tenants, for the first time ever, to know what they're doing with their ventilation system," Carbon Lighthouse Executive Vice President Matt Ganser said. "It's the first time HVAC and ventilation are not back-of-house concepts and could become drivers to retain or attract tenants."
While tenants are asking more questions about HVAC systems, Ganser said he hasn't yet seen a widespread movement from landlords to make upgrades.
"Right now, it's rare that people are taking large action trying to modernize buildings and take buildings into the 21st century," Ganser said. "I've been surprised at the lack of movement in the space, but I think the moment is going to force it."
Landlords are hesitant to make these substantial upgrades because of the financial challenges they face in this year's economic recession, said Nixon Peabody partner Richard Price, an attorney who works with building owners. He said some owners are still holding out hope that the pandemic will be over soon, and they won't need to make major investments.
"There is a lot of embracing the notion that maybe this will be over in six months, so that is a very short-term viewpoint that colors a lot of decisions," he said. "There is, of course, a revenue issue, particularly in commercial leasing. It's really hard to make substantive physical improvements when you've had a precipitous drop in revenue."
But as more tenants pay attention to their building's HVAC systems and demand upgrades, landlords are more seriously considering making the investments, DiGiovanni said. She said MRP is increasingly hearing tenants ask about a building's mechanical systems on leasing tours.
"Upgrading HVAC I think will become much more of a focus," she said. "If it's going to become something people demand, then certainly it is a little easier to consider the cost of it as it becomes standardized. In some cases, you don't need to do a massive upgrade."
Another one of the most common investments landlords have been considering is implementing technology to check occupants' temperatures before they enter the building.
Bruce Pike, who previously owned an event production company, saw this trend coming in March and launched a company called Temperature Check. The company sells a face-scanning temperature checking station with a floor stand for around $3K, and it offers a smaller, wrist-scanning product for around $1,300, Pike said.
"Will this have a cost associated? Yes," Pike said."But people I'm talking to say the only thing they are concerned about is getting people back to work and doing it in a safe way that is going to be feasible for the foreseeable future."
Sargent said many of her clients quickly moved to implement some type of temperature checking solution, considering it one of the most important precautions for entering buildings. But as time has gone on, she said there are more questions and concerns about the effectiveness of checking temperature for diagnosing COVID-19. While having a fever can be a symptom of the disease, there are also a host of other reasons someone may have an elevated temperature.
"Temperature checks at one point were a foregone conclusion, that we were going to have to have those," Sargent said. "Now we have been in this situation long enough that people are starting to question, 'Is that really valid?' and, 'What does that really tell you?'"
Pike said Temperature Check is not aiming to diagnose COVID-19, but it is one tool available to make sure people entering a building are not spreading germs.
"Owners want to keep people in their buildings and give them every type of precaution possible between PPE, face masks, hand sanitizer, social distancing, and Temperature Check is something that shouldn't be excluded from that," Pike said. "All those pieces are in the prevention tool bag."
Temperature checking is also helpful for preventing the spread of other types of illness, and Pike said it is a more common measure in other countries.
"People all over the world have been using this technology as a preventative measure, and America just hasn't," he said. "Even when there's a vaccine, I feel like this [pandemic] will change the way people work and the mentality of when they're sick with anything, people don't want those germs being spread anymore. This is a big wake-up call, and a lot of buildings will take a look at their protocols."
Privacy can also be a concern with temperature checks, as some of the systems store and track people's temperatures. Landlords may prefer not to get involved in that type of data collection.
"The stance we've taken is to encourage tenants to have a program within their own plan to include temperature check, and to provide them with whatever resources we can to get that accomplished," DiGiovanni said.
The effort to bring back workers is leading landlords to consider a host of additional measures that can make their buildings feel safer.
Many of HOK's clients are looking at providing storage lockers in lobbies that tenants can use to change out of their jackets, shoes and other external clothing items that may have been exposed to germs during their commute, Sargent said. This can prevent them from bringing the germs into the office, and it can be especially important for people who commute on public transit.
"Think about if you were wearing a jacket and had just taken the train and all the things you had encountered, it's gross. And then you get into an elevator and go to your desk," Sargent said. "The sooner you can get rid of that stuff, the better."
Landlords are also looking at ways to increase the amount of outdoor space that is available for tenants to work, as people may feel less at risk of contracting the virus when they are in open-air environments.
"We've focused on making sure we activate outdoor workspace if we can," DiGiovanni said. "Outdoor workspace has always had a value, but there's more focus there, and making it feasible to spend part of your day outside is something people will be interested in."
Some developers are looking at implementing operable windows that tenants can open and close to create more airflow and make workers feel more comfortable. A new spec office project in downtown D.C. is being built with operable windows, and its leasing broker called it the "perfect post-COVID building."
Most newer office buildings don't have operable windows, but Sargent said it is something developers should consider.
"One of the things that isn't talked a lot about, but should be, is opening a window," Sargent said. "Most buildings in the U.S. since the 1970s, unfortunately, don't have operable windows, but any area where you have access to be outside or to get fresh air, those are absolutely things we want to be encouraging people to do."