How to adapt old office buildings to compete
New office buildings continually innovate to attract tenants. Over the past 25 years, we have seen office buildings undergo three large design trends. In the early 1990s, many office-building layouts were not good, with low ceilings, inefficient floor-plate designs, and limited retail amenities.
One of the first changes we saw during the late 1990s was building design, such as adding new innovations in layouts, technologies, and amenities. Landlords were optimising the sizing of floor plates and improving building-infrastructure technologies to attract and cater to both large and small tenants by providing some retail amenities, especially essential services for tenants such as banks, food and beverage outlets, and convenience stores.
In the late 2000s, notably in 2009, the “green and sustainable” trend began to take shape in Thailand. Since inefficient buildings waste energy, leading to higher expenses, many developers decided to put more focus on building energy-efficient offices and worked with consultants during the design stages to gain LEED (Leadership in Energy and Environmental Design) certification. From 2009 onwards, energy efficiency, sustainability and healthfulness became standard elements in the planning of new Grade A office projects.
By 2014, building efficiency, facilities, and amenities were being updated and modernised as part of every new office design or refit, which continually set new standards for Grade A offices.
With building hardware getting proper attention, a new concept called workplace strategy emerged. Landlords had to ensure that their buildings had flexible plate layouts, good facilities, retail amenities, and modern technological infrastructures to support and enable the new workplace strategies that their tenants required.
Bangkok has a total of 8.64 million square metres of office stock, of which about 1.82 million square metres is considered Grade A. Around 6.8 million square metres is Grade B office stock or below. Much of the Grade B stock is no longer competitive, which leads to declining occupancy rates in the face of strong competition from newer buildings.
Some of these old buildings have the advantage of prime location, but many do not. We believe that there are some things that landlords of older buildings should consider.
1. They should not fall into the rabbit hole of trying to compete by lowering rents to offset ageing building design, because there will come a point where no one will want an outdated and inefficient building even if the rents are low. And with low rents, the building manager will not have sufficient funds for a proper renovation.
2. If the basic structural design is still functional, owners of older office buildings may consider rejuvenating them by making cosmetic improvements to the lobbies, redesigning facades, modernising their monitoring and evaluation systems and building facilities, and improving amenities to regain competitiveness, especially for those offices in prime locations. The depth of the rejuvenation would depend on the balance of cost and returns.
3. Renovation may not be the best option for every building if critical elements such as the structural design need to be improved. For such buildings, redevelopment or disposal might be considered, especially if they are in prime locations. Spending on renovation might just prove to be a futile exercise with cost recovery no longer realistic.
Landlords of existing buildings will need to renovate and modernise as much as possible to keep up with new office standards in order to retain tenants, stay competitive, and avoid having their buildings becoming obsolete.
ALIWASSA PATHNADABUTR is managing director of CBRE Thailand.