The Future of Class A: Resilience in the Face of Change
Adapting to New Norms: The Strategic Evolution of Prime Commercial Real Estate
Since the end of the pandemic and increasingly over the past year we keep hearing that in the Commercial Real Estate sector, Class-A buildings will never fail to attract customers.
What some of the biggest Asset Managers in the market are telling us is that Grade-A office buildings are seeing a rise in demand. This is certainly striking given the glut of empty office floors and the high vacancy rates blighting many cities, particularly the US.
Demand for the best space is strong and vacancy is low, leading to outsize rents for top office properties in New York, London and Dubai.
Bruce Flatt, CEO Brookfield.
The other face of the coin is that there are plenty of old Grade-A buildings and Grade-B that are becoming obsolete. It’s a huge opportunity to reposition them to a higher quality product or to change their use class to other asset types.
Let’s have a look below at what makes these assets such strong contenders in the market and why they keep going strong despite the turbulent last few years.
Now, let's dive in.
Navigating Shifts: Location Advantage in a Post-Pandemic World
‘Location, Location, Location’ they used to say. Assets located in key Gateway cities (London, Paris, Milan, New York…) and in proximity to transportation nodes are at an advantage.
The pandemic has completely changed the way people relate to offices. The idea of commuting to the office for 1 hour or more is something people now openly admit they don’t want to do anymore. Buildings that are badly served by any form of transport will struggle to succeed.
Are offices located in Central Business Districts still what people want though?
The 15-minute city model is on the rise and people are seeking more and more local coworking hubs within walking/cycling distance from their homes.
Will this change how we define Grade-A offices?
Innovation at the Core: Elevating Building Tech for Tomorrow
Technology remains a game-changer. The adoption of AI in everyday life requires advanced tech infrastructure to handle the growing level of data transactions.
Efficient property management and enhanced tenant experiences hinge on innovative tech solutions.
If the technological infrastructure backbone is a given there is still work to do to improve the front-end experience.
Despite progress, the industry seeks more intuitive tenant apps, underscoring the need for a user-centric approach to digital tools.
Secure Foundations: The Value of Quality Tenancy
The correlation between lease stability and tenant quality remains paramount.
Esteemed tenants bring value, as noted by Brookfield Properties' strategy to invest in global CBDs. Yet, the evolving landscape poses questions about the future valuation criteria for commercial real estate, challenging conventional wisdom.
Is there a future where Commercial Building Valuations will change?
Listen to this excellent video by @Sam Gamble:
Sam Gamble on YouTube.
Beyond Spaces: Crafting Exceptional Tenant Experiences
Commercial Real Estate is no longer about empty white boxes, but about creating the most attractive experiences for the customers inhabiting them.
The trend towards hospitality-infused offices accelerates, driven by a demand for compelling reasons to commute.
The reason is simple, customers want a great reason to make the commute to come into the office. They want to experience something much better than their own homes or other third locations (hotel lobbies, cafes, client offices) they may choose to work from.
Below are some great office examples that are implementing this:
The public office lobby at 22 Bishopsgate in the City of London.
The blend of workspace + retail + transportation at 100 Liverpool Street in the City of London.
The blend of business and Leisure at One Olympia at Olympia in West Kensington, London.
The common ground at MIND WestGate, in Milan.
Leading with Green: The Drive Towards Sustainable Futures
Sustainability is non-negotiable. Certifications like LEED, BREEAM, and WELL, become baseline expectations, reflecting a broader industry mandate for environmental stewardship and occupier well-being.
In addition, the market is increasingly expecting certifications in:
Health and wellbeing are increasingly important to occupiers who seek environments with high air quality, daylighting and low carbon materials.
Conclusion
The concept of Class A buildings is under scrutiny. While certain fundamentals remain robust, the industry must navigate the changing dynamics of location preference, technology integration, tenant quality, amenity offerings, and sustainability standards. This journey challenges us to rethink established norms and embrace innovation.
Decentralized premium locations = > are emerging as desirable alternatives.
Technological infrastructure = > demands a shift beyond basic tenant apps.
Tenant quality = > may evolve as a valuation metric.
Amenity offerings = > are becoming increasingly sophisticated.
Sustainability = > transcends certifications, reflecting a deeper commitment to the planet.
That’s all for today.
See you next week.
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