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Coronavirus-Resistant Offices May Have An Advantage In The Market

Jonathon Yormak, founder and managing principal of East End Capital, was in the middle of renovating a more than 100-year-old, 120K SF office building in New York when the coronavirus hit. He'd already decided to completely overhaul the air and ventilation system in the building.

"It's only a 26-story building, so it wasn't so big as to make it impossible, but we essentially went from a central system to a VRF system [a high-capacity, ductless HVAC system], which basically allows each tenant on each floor to manage their own heat and air, and the system was designed to have an excess of a Merv 13 filtration system [enough to filter fine particles from smoke and bacteria], which is pretty high," Yormak said.

Now he's even exploring adding in UV filtration or plasma filtration.

East End Capital's Jonathon Yormak's office building at 100 Biscayne Blvd. in Miami has unobstructed views of Bayfront Park.

Speaking on a Bisnow webinar with Blanca Commercial Real Estate CEO Tere Blanca and Sage Glass regional sales director Carl Newhouse, Yormak acknowledged he's only able to afford the upgrades because he bought the building cheaply. Still, he said landlords should consider physical and psychological aspects of leasing, and adjustments both cheap and expensive, to lure tenants and even get them to pay premium rents. 

Commercial property owners are always looking for ways to have their assets stand out in the marketplace and have a competitive advantage, and many have long been aware of air filtration and ventilation as potential draws.

"The question was: Who would pay for them, and was a tenant prepared to pay more?" Yormak said.

Now, "I think tenants will pay a premium for knowing that they're in a building where they have clean air," Blanca said. 

Cheap solutions can be effective, too. Signage reminding people to stay 6 feet apart or hand sanitizing stations placed at entrances and exits remind everyone to behave a certain way and give visitors a sense of security and send an implicit signal that the building is attentively managed, Yormak said. 

"I think wayfinding has a psychological impact — the second you walk into a building, to know that that building owner is seeking to manage the property properly in this context is helpful," Yormak said.

Studies show the coronavirus is transmitted through air, but surface cleaning still makes occupants feel comfortable, he said.

Clockwise from top left: SageGlass's Carl Newhouse, East End Capital's Jonathon Yormak and Blanca Commercial Real Estate's Tere Blanca.

Yormak predicted that office vacancies will continue to rise in the near term, hampering landlords' ability to upgrade buildings. Well-capitalized and newer buildings will incorporate new systems right away, but those only comprise about 10% to 15% of the overall stock in any given city. 

"So I think this is going to take a long time to play out in a more permanent way," he said. "I think all the things we've been talking about will happen, but this is probably like a 20-year cycle."  

Blanca said she's "very cautiously optimistic" about Miami's office market, which has been off the mark in leasing by about 25% but has a healthy pipeline of middle-market companies coming in, seeking 100K SF to 160K SF, she said. 

Coronavirus's impact showed in the Q2 data; a Colliers International report from July shows cruise- and aviation-related tenants were especially hurt. While Morgan Lewis signed an 18K SF lease at Brickell World Plaza and IberiaBank signed a 14K SF lease at 1111 Brickell Ave., Miami-Dade County’s vacancy rate increased to 9.5% and net absorption recorded negative 480K SF.

"A heavy pipeline of 3.7M SF remains under construction," the report said. "Looking forward, landlords are considering increasing concessions for new tenants, however, rental rates so far have remained stable."