Renovation Roundup Part 1: Why Office Renovations Aren’t Driving Occupancy and Rental Rates Like Before

This is the first in a three-part series analyzing the how the evolution of the office renovation playbook has impacted the state of the office markets in the major Texas metros.

The gleaming towers of glass and steel that once defined office space are facing a reckoning. In the wake of a global pandemic that redefined work and workplaces, the traditional equation of “renovation equals higher occupancy and rental rates” is no longer so simple. This shift presents a complex puzzle for landlords, developers, and the future of office space itself.

The Pre-Pandemic Playbook

For decades, the office renovation playbook was straightforward. A fresh coat of paint, updated amenities, and modern technology were seen as magic bullets, attracting tenants and boosting rental rates. This strategy thrived in a pre-pandemic world where physical presence was paramount and competition for talent fierce. A swanky office was a perk, a status symbol, and a potential differentiator.

In the past, office renovations helped push occupancy levels up to 430 basis points on average roughly two years after they were completed. Between 2016-2017, there were almost 80 office properties that underwent major office renovations across the four big Texas markets.

The Seismic Shift

The pandemic shattered this paradigm. With remote work becoming the new normal, the value proposition of the traditional office space has changed dramatically. Employees now prioritize flexibility, work-life balance, and a sense of purpose over proximity to colleagues and fancy foyers. This has led to a significant drop in office occupancy rates across major cities, with many companies opting for smaller footprints or hybrid work models.

Post-Covid, because of hybrid work and other factors, the same pattern does not hold true. Office renovations did not boost overall occupancy, but slowed its decline in comparison to renovated properties.

In the past, office renovations not only increased occupancy, but also helped to push average asking rates up by $2.46 per square foot roughly (on average) two years after renovations were completed.

Post-Covid, renovations still helped pass on rental rate increases, but the increase was much less than the past, increasing $0.79 per square foot (on average) two years after renovations were completed.

The Renovation Dilemma

So, what does this mean for office renovations? The answer is nuanced. While flashy renovations might not automatically translate to higher occupancy and rates, strategic investments in the right areas can still hold value. Here’s why:

• Enhancing the Employee Experience: Renovations that prioritize employee well-being, collaboration, and productivity can still be attractive. Think natural light, green spaces, ergonomic furniture, and technology that fosters seamless remote and in-person collaboration.
• Catering to the Hybrid Model: Offices need to adapt to the hybrid reality. This means creating designated spaces for focused work, impromptu meetings, and social interaction, all while ensuring a smooth transition between physical and virtual environments.
• Sustainability and Community: Incorporating green building practices and fostering a sense of community within the office building can attract environmentally and socially conscious tenants, who are increasingly important in today’s market.

The Road Ahead

The future of office renovations is not about replicating the past. It’s about understanding the evolving needs of tenants and creating spaces that are functional, flexible, and inspiring. Landlords and developers must become data-driven, understanding tenant preferences and tailoring renovations accordingly. This might involve offering flexible lease terms, co-working spaces, and amenities that cater to a diverse workforce.

The post-pandemic office market is a puzzle waiting to be solved. By understanding the new landscape and investing in renovations that truly resonate with tenants, landlords and developers can create thriving office spaces that attract and retain talent in the new era of work.

Additional Points to Consider

• The rise of co-working spaces and flexible office solutions is further challenging the traditional office model.
• Location continues to play a role, with urban centers still holding some appeal, but suburban and satellite offices are gaining traction as companies seek to reduce costs and cater to a more dispersed workforce.
• The role of technology in office design is crucial, with features like smart building systems and seamless video conferencing becoming essential for hybrid work models.

Remember, the key is to move beyond the pre-pandemic playbook and embrace the evolving needs of the post-pandemic workforce. By doing so, office renovations can once again become a powerful tool for attracting and retaining talent, but this time, on a foundation of flexibility, well-being, and a renewed purpose for the physical office space.

Examples of renovated office properties in Texas

The office market in Texas saw interesting trends during the pandemic years of 2020 and 2021, with renovations reflecting a focus on flexibility and adapting to changing work styles. Here are some examples in the major markets:

Austin

100 Congress: The property was built in 1987 and renovated in 2020. This granite clad building has on-site retail establishments, valet parking and recently renovated lobby. Building security is implemented by passcard access and video security. Tenants enjoy shared tenant services, available storage space, fiber optics building via ARC, and additional available visitor parking.

111 Congress (One Eleven Congress): The property was built in 1985 and renovated in 2020. The striking stair-stepped pyramid design executed in red granite makes One Eleven one of the most recognizable profiles on Austin’s skyline. Amenities at the property include a fitness center, on-site restaurant, a food court, shower facilities and balconies.

600 Congress: The property was built in 1984 and renovated in 2017. The building’s distinctive, three-tier tower configuration contributes to its prominence on the Austin skyline. The lower five floors are finished in native Texas limestone, and accented with granite and brass. An impressive two-story arched entry greets tenants at the street level. Building amenities include a full-service bank, restaurants, Starbucks, ATM, and copy services. Other onsite features include a florist, a newsstand, an overnight courier drop box and a sundry shop.

Dallas-Fort Worth

801 Cherry St (Burnett Plaza): The property was built in 1983 and renovated in 2021. The building has three primary building entrances: the main lobby is recessed behind a colonnade on the building’s east side and looks out onto Burnett Park through an 18′ high clear glass wall.
Complimentary shuttle to Sundance Square; Many amenities available include: Concierge, Alonti Deli, full service bank, hair salon, dry cleaners, convenience store.

1601 Elm St (Santander Tower): The property was built in 1982 and renovated in 2017. Santander Tower is located in the heart of downtown Dallas’ historic main street district. This iconic 50-story office tower has dramatic views of Uptown Amenities include: Fitness Center, Banking, Concierge, Food Service, Sundry, On Site Management, 24/7 Security Team, Direct Access to Dallas’ Pedestrian tunnel system.

5956 Sherry Ln (Sherry Lane Place): The property was built in 1983 and renovated in 2020. This building provides an On-Site courtesy guard & management. The Park City Club is located on the 17th floor with an excellent view of the Dallas Skyline. Amenities include: Fitness Center, Conference Center, Food Service and Restaurant.

Houston:

2800 Post Oak Blvd (Williams Tower): The property was built in 1983 and renovated in 2020. An Icon part of the Houston Skyline, it is the tallest US building outside of a central business district. Amenities include: 2 food service providers, a sundry shop and retail branch banking. A 8,700 SF conference center which can accommodate up to 200 people. Additional amenities include 24/7 security, a 10,000 SF fitness center, on-site dry cleaning, and shoe shine. Via the Skybridge, Williams Tower has direct access to hundreds of world-class retail amenities in the Houston Galleria.

5847 San Felipe St (San Felipe Plaza): the property was built in 1984 and renovated in 2017. The second-tallest building outside of downtown Houston, San Felipe Plaza’s polished facade and stair-stepped setbacks are a landmark. The polished granite and tinted-glass tower was designed by Skidmore, Owings & Merrill. The three-story main lobby with granite, marble and wood finishes is overlooked by an open second-level mezzanine. Unsurpassed, unobstructed views in all directions. The property has a state-of-the-art, energy-efficient variable air volume system. A 2,700-space garage with enclosed, environmentally controlled building access. A heavily landscaped plaza with seating areas and environmentally controlled access to retail areas. Additional amenities include: barber/salon, car wash, shoe shine, overnight courier drop box, and overnight courier office.

600 Travis St (JPMorgan Chase & Co. Tower): the property was built in 1981 and renovated in 2021. The 75-story Chase Tower is the tallest building in the state of Texas and has underground access to the 20-store Chase Center located directly across the street at 601 Travis Street. The 600 Travis building features upgraded interior finishes, gray glass and pale gray granite on four sides with an extraordinary 85-foot wide free-span of glass ascending the Tower’s full height on the fifth side. There is tunnel access to retail, restaurants, banking, and travel agency. Additional amenities include: Banking, Conferencing Facility, Controlled Access, Energy Star Labeled, Fitness Center, Food Service, and Restaurant.

San Antonio

300 Convent: The property was built in 1983 and renovated in 2021, adding tenant-based amenities, including a new fitness center, a dynamic media wall and several conference and collaboration areas.

111 Soledad St (Riverview Towers): The property was built in 1983 and renovated in 2021. Amenities include a street level restaurant (Texadelphia), executive suites, recently refurbished common areas, building conference center 24 hour security, key card access, building conference center, copy service, building breakroom, on-site management and leasing, and a touch screen directory.”

Interested in investing in Texas?

If you’re an accredited investor, you can sign up and invest in Texas-based opportunities directly through our online investment platform, Partners Finance—the capital-raising division of Partners Real Estate.*

*Securities offered through Partners Finance, member FINRA / SIPC. Investing in private placements is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. Some of the risks of investing in real estate include changing laws, including environmental laws; floods, fires, and other acts of God, some of which may not be insurable; changes in national or local economic conditions; changes in government policies, including changes in interest rates established by the Federal Reserve; and international crises.

Click here to request supplemental material.

Steve Triolet
Senior Vice President of Research and Market Forecasting
[email protected]
tel 214 223 4008