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Landlords Opting to Renovate as Houston Sublease Supply Reaches 11 Million SF – Q&A with Arch-Con’s Scott Crain

Scott Crain

Scott Crain

HOUSTON — With 10-year interest rates near record lows and an abundance of empty office space in Houston, building owners have the opportunity to improve their assets and building tenants are asking, “Should I stay or should I go?” Many building owners are considering renovations and improvement programs. Arch-Con Construction’s new Vice President Scott Crain understands this growing demand for making capital improvements. Crain spent 15 years on the owner side of commercial real estate managing the Houston assets for Solvay, a global chemical company. Crain now leads capital improvement projects for Houston-based Arch-Con, building on the success of projects such as renovating and upgrading the iconic One Riverway lobby and atrium. As the supply of sublease office space reaches 11 million square feet in the Houston market, Realty News Report reached out to Crain to explore this timely topic.

Realty News Report: What are the most popular renovations or improvement projects that Texas office building owners are undertaking in 2016?

Crain: There is a big shift toward shared conference space equipped with the most current, adaptive technology to appeal to a variety of users. Collaboration is the new work model and these spaces, generally ranging from about 3,000 to 5,000 square feet, allow tenants the opportunity to leave their individual desks and work in an environment that fosters creativity and productivity. State-of-the-art modular components such as furniture, walls and wireless electronics can further enhance the flexibility of these shared spaces. Other popular building improvement projects are shared fitness centers and energy efficient initiatives such as new HVAC systems, LED lighting and smart irrigation systems.

Realty News Report: How many landlords are truly motivated to earn a sustainability rating on their properties? Does it really matter if your building is LEED Gold or Silver?

Crain: There is an expectation from the city of Houston that all Class A buildings will have a LEED or Energy Star certification. This might be a stretch goal, but it does support the current movement toward more sustainable properties. As the workforce changes and more Millennials enter the market, sustainability has seemingly taken a more visible position in the marketplace. Granted, opinions vary, but trends show this has gained traction in recent years and an LEED Certification moniker on buildings does positively impact current or prospective tenants from an image and monetary perspective.

Realty News Report: What’s really the motivating factor for building owners in Houston today? Are they improving their buildings to retain existing tenants or to attract new tenants?

Crain: Building owners are motivated by return on investment and anchor tenants are critical to that ROI. In this tenant-friendly market, owners want to keep large tenants happy in order to renew or keep their lease. If a building has a lot of smaller tenants and no anchor tenant, they will take action to enhance their property in order to attract these larger tenants.

Realty News Report: So what should building owners consider?

Crain: As building owners are budgeting for 2017 and beyond, the million dollar question is: are they going to update their assets and, if so, how? With overall prices trending down, now is the time but it is always a balance. Do you improve your property for the property’s sake or for retaining existing and attracting new tenants?

Realty News Report: If you owned a 300,000 square-foot multi-tenant building in Houston, which would you rather have – a shared conference center or a fitness center?

Crain: With an office of that size, I would build a state-of-the-art multi-purpose conference center with break out areas that could accommodate various sizes of groups and enough Wi-Fi to support a small army. As mentioned before, the “sit at your desk and do your job” mentality is giving way to activity-based planning, and we’re going to see more and more tenants beginning to demand these types of amenities from their landlord. This model has been present within the walls of tenant spaces for a few years now, but is quickly being applied to entire buildings and campuses.

Realty News Report: When do you get to the point that you say that a building has fatal flaw or needs so many fixes that you recommend just demolishing it?

Crain: This is never an easy decision and would require a comprehensive property analysis. In most cases, presuming the basic structure is sound, floor plate aspect ratios and bay depths are in line with the completion competing buildings, etc., a landlord may consider repurposing the property to position it for lease or future sale. Options include re-skinning the exterior, renovating the lobby and upgrading restrooms on each level.

August 4, 2016 Copyright Realty News Report 2016

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