Office renovations in Texas aren’t as effective as they used to be

Renovating lobbies and adding a bunch of amenities is necessary for office landlords to compete in the flight-to-quality trend of the remote work era, right?

That might not be as effective as previously thought.

In 2020 and ’21, office renovations in Texas failed to replicate the success seen in years prior to the pandemic, when spiffing up boosted office occupancy levels by 430 basis points, Bisnow reported, citing data from Partners Real Estate.

“The pandemic shattered this paradigm,” said Steve Triolet, a researcher and market forecaster for Partners said. “With remote working becoming the new normal, the value proposition of the traditional office space has changed dramatically.” 

Triolet’s analysis focused on Texas office buildings, comparing those renovated before and during the pandemic. While buildings upgraded between 2020 and 2021 didn’t experience an increase in overall occupancy, their decline in occupancy was slower compared to unrenovated properties.

Furthermore, rental rates increased by 79 cents per square foot for upgraded properties in the initial years of the pandemic, a substantial decline from $2.46 per square foot observed in buildings renovated between 2016 and 2017.

Across Texas’ major metros, the report highlighted a complex puzzle for landlords and developers. Prior to 2020, renovations in Dallas-Fort Worth boosted occupancy by an average of 500 basis points, compared to 360 basis points today. Pre-pandemic renovations caused asking rates to jump by $2.43 per square foot in DFW, while rising by $1.71 per square foot post-Covid.

The results were similar in Houston, where the occupancy boost declined from 389 basis points to 279 basis points, with rental rate increases following renovations also falling from 53 to 32 cents per square foot, the outlet reported.

As the traditional effectiveness of renovations wanes, questions arise about the fate of aging properties. Residential conversions, often seen as a solution for ailing office buildings, are limited, with fewer than 100 properties in Texas meeting the necessary criteria for adaptive reuse, due to floor plate size and other factors. 

Triolet emphasized the need for strategic investments in highly desirable areas, emphasizing the importance of understanding evolving tenant needs in the post-pandemic era.

—Quinn Donoghue

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