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Does the Hotelization of Offices Work in the Age of COVID?

February 17, 2021

kitchen in an office

More services and amenities could be the key to attracting tenants. But the difficulty of obtaining capital for customized improvements puts up barriers to “hotelizing” offices.

COVID-19 is speeding up the work-from-home revolution, as more employees are avoiding the office and working remotely than ever before. 

Pew Research Center reports that 71% of workers with the ability to complete their duties remotely are doing so, and 54% of them want to continue working from home after the pandemic. This number shows an increase from the 20% of employees working from home before COVID-19, indicating a durable shift in the work environment. 

Regardless of the stats, many employers will require workers to return to the office after a complete vaccine rollout. But there could be resistance from individuals who have become accustomed to the convenience and amenities of working from home. 

This may spur a second look at “hotelizing” the office, which involves bringing many of the amenities found in hotels—and the home—into the workplace.

What is the hotelization of an office, exactly?

To understand the concept, consider the amenities that most hotels contain. 

For starters, there’s often a grand lobby with comfortable furniture and plenty of places to relax. Adding cozy couches, sturdy coffee tables, high-end décor, and classy flooring creates an upscale atmosphere that can make the office seem more like a “destination.”

The furniture in a hotel lobby is often well-spaced to offer privacy. And such spacing is an essential trait in the post-COVID world, given social distancing requirements. Including comfortable furniture also provides casual locations for meetings, helping employees feel more relaxed at work. 

Next, think about the other amenities a hotel offers. There’s likely a fitness facility somewhere in the building, perhaps a salon, and rooms that have a full kitchen and dining area, as well. Adding these features to an office is beneficial for many reasons, chiefly saving employees time and money.

Workers who can stop at an onsite gym before or after work may reclaim another hour from their day. A kitchen provides the opportunity to cook a quick meal and avoid eating out. And various other amenities, from dry cleaning services to hair-care options, offer similar benefits.

The cost-savings and convenience of these facilities could be a significant factor in attracting new employees and retaining current ones, as well as attracting the tenants who need these workers.

As always, location matters

When someone books a hotel room, they usually choose a building close to their desired activities in that city. Getting into vehicles and driving to destinations is often a non-starter, so they’ll reserve a space within walking distance.

Businesses often take the same approach when selecting office space by leasing properties close to desired amenities. A location ideally has numerous restaurants, service businesses, and fitness centers nearby while providing plenty of parking or public transportation access—all of which reduce the need to hotelize the business property itself.

For investors, looking at what’s close to the structure is often just as important as the building itself. The goal is to provide as many convenient at-home amenities as possible to attract tenants.

The impact of shorter leases on access to capital and hotelization

Things that stand in the way of the extensive property improvements required to hotelize a space are economic uncertainty, the trend toward shorter leases, and stricter access to capital, despite extremely low interest rates.  

Companies are increasingly looking at short-term leases, making it financially unfeasible for building owners to significantly retrofit a building for potential tenants. Lenders are taking a hard look at the possible ROI of a project and the leases that underlie it to hedge their risk. And there is no sense in spending significant time and money to hotelize a space if enough tenants won’t commit long term.

One solution may involve creating flexible spaces or going with a hybrid model. For example, a large office building may have one or several long-term tenants on the upper floors, temporary space-as-a-service offices on the lower levels, and kitchen, dining, fitness, and other facilities on the bottom floors. 

The long-term tenants defray the risk while reaping the amenities, which also attract shorter-term tenants—possibly co-working spaces. The amenities are common areas for all lessees, defraying the expense in proportion to the potential ROI. And the on-demand office areas can provide additional office or meeting space for long-term tenants when they need it, increasing flexibility as more employees return to work. 

Looking to the future

While it’s impossible to tell precisely how the economic recovery and post-COVID return to the office will shake out, we know that many employees love working from home—and some may never look back from the experience. At-home-like workplace amenities could make the return more palatable, plus attract new tenants and the new employees they need. 

Regardless, the customization required for hotelization is held up by shifting and reduced overall demand for office space in some areas, along with the trend toward shorter leases as businesses navigate an uncertain environment. Individual situations and needs will vary, but we suspect much of the hotelization trend will be put on the back burner until the pandemic’s aftermath becomes clearer. 

The commercial real estate landscape is quickly evolving as we’re going through an unprecedented period of volatility. At Morris Southeast Group, we have our eyes on the situation and can help investors and tenants navigate the present and future of CRE. Contact us at 954.474.1776 to learn more. You can also reach out to Ken Morris directly at 954.240.4400 or kenmorris@morrissegroup.com.

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