High-rise construction, like most industries in 2020, suffered declines and setbacks. According to a report from the Council on Tall Buildings and Urban Habitat, only 106 tall buildings (those 200+ meters or 660+ feet in height) were completed last year globally. That’s a 20 percent decline from 133 buildings completed in 2019.
This decline marks the second year in a row that tall building completions decreased, but though construction rates might have slowed, demand for high-rise space was relatively stable before the COVID-19 pandemic. In fact, for the last decade, office vacancy rates had actually been declining. According to Deloitte, U.S. office vacancy rates dropped to 9.7 percent at the end of the third quarter of 2019, compared with 13 percent in the third quarter of 2010.
COVID-19 has changed the sentiment about the high rise. The pandemic forced many employers to send their employees home, leaving many high rises vacant. Even though many have since returned to work, some companies have decided to continue allowing employees to work remotely for good. Now many companies are rethinking their high-rise offices and the product type as a whole is poised for an overhaul.
A look back
High-rise construction increased dramatically in the mid 1970s when multinational corporations increased demand for new office space. Since then the popularity of high rises has been cyclical. Now, due to the pandemic, the high-rise market is shifting once again and projections are surfacing once again about a possible move away from traditional high-rise offices toward new construction of low-rise industrial parks and campuses, or repurposed industrial, retail, restaurant, mall, and other non-traditional product types. In some parts of the country, there is greater investor appetite for suburban assets. As core product availability dwindled, investors turned to suburban markets and tertiary markets to place abundant capital.
Attitudes around high rises have changed as well over the years. In the past, working on a higher floor was viewed as desirable. In a 2006 Frontiers study, workers in supertall office buildings globally overwhelmingly demonstrated a preference for working on high floors. Now, more and more companies are vying for the lowest floors in response to the pandemic and a desire to not have to ride in crowded elevators. This trend may be a short-lived one, however. In 2001, after the World Trade Center collapsed in Lower Manhattan, the high-rise office as a whole was viewed as unsafe and companies fled to suburbs, low rises, or lower floors in high rises. Though this persisted for a couple of years, the trend reversed and over the last decade, demand surged once again for upper floors in high rises.
Focusing on the future
Changes to the market and shifting attitudes around high rises mean property owners must either make changes to make high rises more attractive or consider an alternate use. This means thinking about the highest and best use in the market, tenant demand, trends, and competitive product types. With either strategy, technology can be part of that transformation.
Rezoning
Depending on location, converting a high rise from commercial to residential could open up a wealth of opportunity. Many Downtown submarkets are employing adaptive reuse models and sparking a resurgence in urban living in cities where a younger generation of workers are forsaking the suburbs to be closer to entertainment and nightlife.
Additionally, instead of a complete rezoning shift to residential, property owners could also consider mixed-use zoning. Picture ten floors of office space, 15 floors of multi-family units, a hotel spanning ten floors, several floors of retail, and a nightclub and restaurants on the top floor. There are already successful examples of this model in major U.S. cities. The Mandarin Hotel in Columbus Circle in Manhattan boasts 202 rooms, 46 suites, 64 residences, 2 restaurants, meeting and event space, a spa, a fitness center, and an indoor pool; 181 Fremont in San Francisco comprises 35 floors of office space, 16 floors of condominiums, residential amenities, and a two-story open air terrace; Wilshire Grand in Downtown Los Angeles contains 7 floors of podium retail and meeting rooms, a gym, a pool, 18 floors of offices, 37 floors of hotel rooms, 5 bars and restaurants, and a top floor lobby.
Property owners should look to emerging technologies for opportunities. For example, high rises are often located near freeways, which in the future could mean easier access for driverless/shared cars. Additionally, technology upgrades such as a digital concierge that can anticipate the needs of tenants and connect them to desired services could help set residential properties apart.
Redesigning
Those who choose to stick with the commercial route must make significant changes and implement creative ways to remain competitive and attract tenants. As companies grapple with the allure of remote work, many are looking for ways to entice their employees to return to the office. They’ll want a high rise that offers amenities that go beyond on-premises dining options and a gym.
High rises of the future should offer amenities that cater to the busy worker. Picture a one-stop shop where a worker’s every need is anticipated. This would include onsite banking, laundry services, shopping, childcare, and more in the same building they already visit every day.
Aside from design and energy efficiency, the high rise itself hasn’t changed dramatically since the 1970s. In fact, many of those buildings are still standing, but tenant needs are changing. Companies are expressing more interest in large floor plates, high-end build out, a more creative feel, commitment to a great employee experience, operable windows, and improved air systems. To set themselves apart, property owners will need to meet these requirements and also consider integrating new technologies to make the experience of office tenants seamless. This can include last mile mobility options like electric scooters to help employees get to work more easily. Looking at the high rise from a different perspective will ensure that they remain a viable product type for decades to come.
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