Real Estate Trends for the 2022 Budget

By: Becky Hanner, Hanner Commercial Asset Services

Being the smart property manager that you are, you already knew to pour that cup of strong coffee, block off a large portion of your day, hit ‘do-not-disturb’ on your phone and find a quiet area to focus solely on budgets. This is a good thing too, because 2022 is not a normal budget year! But before we get into real estate trends you might wish to consider to include in the 2022 year, let’s review some budgeting basics.

Remember who your customer is and what their goals and objectives are. If you enter into this process in a mechanical fashion - auto-drive, if you will - then you most certainly will miss your mark. Be certain you are clear on what the property owner wishes to accomplish this coming year so you can implement these objectives into the budget. Owner’s goals change, and you may find a completely different mindset for the property than previous approaches, so don’t assume you know the direction of the property until you have this discussion.

Your 2020 actual likely missed its target due to COVID-19. Perhaps your utilities were less than anticipated due to having fewer people in your building. Conceivably your cleaning expenses were higher due to intense cleaning practices. OR maybe you were able to normalize operating expenses by strategically working on special projects. When it was time to start the 2021 budgeting process, you may have budgeted additional costs into the budget to continue the higher standard janitorial and antiseptic surface coverings or perhaps you anticipated higher security and insurance costs.

No matter where your 2021 actual to budget compares, your historical data over the past two years could be skewed. Many property managers tackle budgets based on historical data. For 2022 you might consider developing a zero-based budget rather than viewing each line item on recent history. This will help you look at each income and expense item through a different lens and may afford you the possibility of achieving greater income potential or discover areas for expense savings.

As an example, a strategic action for the property could be to have it professionally measured to the latest BOMA standard. For office, that currently is the 2017 standard or “BOMA/ANSI Z65.1 2017”. Measurement professionals have found that buildings grow an average of 2-3% when remeasured due to minor construction modifications during development, tenant renovations or simple miscalculations. If your building is 100,000 square feet and an additional 2,000 square feet is found, this could equate to added future revenue. A conservative $20.00 per square foot rental rate would bring additional revenue of $40,000 per year. A 5% cap rate adds $800,000 value to the asset. The cost to remeasure is minimal – approximately $4,000 for a building of this size.

After considering these budgeting basics, what real estate trends do you need to consider for the 2022 year?

Three things you will need to give thought to are 1) health and wellness; 2) technology; and 3) amenities. These three things are high on the list of your prospective tenants wants. In fact, you may have noticed that HR is more involved in site selection than ever before because the company location is a recruiting tool. Workers want to work for a good company, but they also want to be somewhere they wish to work. Your building will have a better competitive edge if it has or is implementing the following three things.

Health and Wellness

The desire for health and wellness has escalated over the past two years. Don’t confuse this with LEED or BOMA 360. Buildings that have achieved a LEED rating is because of sustainability achievements. Building best practices are demonstrated by obtaining the BOMA 360 recognition. A WELL or Fitwell certification will show the property owner’s support for the building occupant’s comfort and well-being. Entering into a program focused on health and wellness will help you attract tenants as well as appeal to your current tenants. While tenants are focused on building health and safety, don’t forget that sustainability and best practices are also very important.

Any time your property management team engages to achieve any one of these recognitions, they learn more about the building they manage. This process will help them focus on opportunities or gaps in their operational strategy. This is truly a bonus and will help your team’s case their skills and knowledge, plus be a great marketing tool for your property.

Technology

There is a plethora of technology available in commercial real estate. How do you know which to consider for your property? One thing is certain, your tenants and prospects expect a modernized building. The good news is that once you choose and implement a technology, your staff should gain efficiencies in building operations, increase tenant satisfaction and be provided with powerful analytics.

Think back on how you ran your building before you had a building automation system (BAS). Reflect on how much more efficiently your building runs through the BAS. Your tenants are more satisfied and your team has data to analyze regarding building hours and utility use. Implementing the BAS system was a ‘win’ for your property.

Determine what needs you and your team have when deciding which technology to implement. Try to implement one technology each year. For example, you might wish to consider sensors in certain areas of your building to see how frequently certain areas are utilized. Prior to the pandemic many property owners threw money at hard amenities such as fitness centers which were rarely used. They were simply checking a box. Sensors could provide data needed to justify repurposing the fitness space into a leased space.

If you don’t have an electronic accounts payable system perhaps this is the technology you wish to implement to eliminate paper invoices, minimize the frequency of human touches needed to process an invoice and the ease with which to process. Consider what pain points you have in your building or your operations and consider technologies that can streamline and provide your staff efficiencies.

Amenities

As building occupants come back to the workplace, they want the same amenities they enjoyed before the pandemic, but they also want the conveniences they enjoyed at home. It is up to the building owners and managers to create an environment that not only gives workers satisfaction but also engages them. The in-place fitness centers and cafes may not be the answer since workers’ desires have evolved over the past two years. Creating events has become an integral expectation of the property management staff. Now is the time to consider every unique space you have in and out of the building as a potential amenity space. A lobby or fitness center could become a collaboration area, and imagine your café split up into flexible space with a portion designated for bicycle racking.

Your grounds and parking area are your blue ocean. Yes, you need to ensure your building occupants have a place to park, but think of the many varied food and service amenities you can alternate through your outside area. There are technology platforms such as MOBLZ and Go Amenity that provide the platform to handle and coordinate these services and save your staff time. Consider having a ‘health day’ at your park where you have chiropractic service, blood drive and massage service with your food trucks. On another day your theme might be hobby day with food trucks, bicycle repair, and fly-fishing lessons. Other thoughts are beauty days with haircuts, tanning and nail salons. Or have special day events like Valentine’s Day with candy, flowers and gifts.

In conclusion, budgeting for 2022 will be a challenge. The pandemic has altered our original plans and accelerated initiatives. Tenants are expecting more and are not pushing back on reasonable operating expense increases for trending technology focused on health, wellness and amenities. Be very deliberate and thoughtful as you review every budget line item to differentiate your building. Envision where you want your asset to stand in the market in the coming 2022 year.

Becky Hanner is a recognized thought leader known for growing businesses while positively cultivating internal and external relationships. Becky has been in commercial real estate for 30 years. A skilled mentor, Becky develops a strong work culture focused on high expectations, collaboration, and quality service delivery, and achieving process improvements through employee engagement.