CRE Opinion

What Real Estate Investors Really, Really Want

HKS CEO: As consumers continue to require more personalized experiences and more on-demand services, technology-enabled facilities will become even more attractive.

Appealing to commercial real estate investors used to be less complicated. They wanted significant buildings in top-tier cities with great locations at minimal capital costs filled with AAA-rated tenants. They still want those things, but now they are eyeing cities that were once considered “secondary” markets and factoring in something like the tenant experience, smart building technologies, placement within a broader “smart” neighborhood context, and sustainable development concepts.

With Dallas-Fort Worth continuing to lead the nation in job and population growth, our dance card will remain full for the foreseeable future.

Dan Noble, HKS Inc.

Every major foreign and domestic real estate investor is looking at DFW. In 2019, the region was ranked no. 1 in job growth for the third consecutive year, providing 127,600 new jobs, it would be ranked fourth if it were a state! New York was second at 97,300. At current growth rates, DFW will become the thirdlargest metropolitan area in the U.S. by 2040, bypassing Chicago.  DFW is headquarters for three of the 10 largest U.S. companies: Exxon, AT&T, and McKesson. No other metro area in the U.S. has more than one Fortune 10 headquarters.

Just look at recent sales prices racked up by some of our area buildings. The new record for price per square foot is 1900 Pearl Street in downtown Dallas, which sold for $700 per square foot. Legacy Tower in Plano sold for $400 per square foot while KPMG Plaza went for $533 per square foot, and 2000 McKinney sold for $504 per square foot.

What do all these buildings have in common besides being designed by HKS? They all have excellent locations; they include building technologies that allow them to operate more efficiently and more sustainably; they have floor plates that respond to clients’ needs, and amenities, and other real estate surround them uses that add more to the tenants’ experience.

Increasingly, property owners are considering buildings that are “future-ready,” meaning they can quickly adapt to a changing workplace and technology advancements that sync with mobile apps that use Artificial Intelligence (AI) and the Internet of Things (IoT).

As consumers continue to require more personalized experiences and more on-demand services, technology-enabled facilities will become even more attractive.

According to a recent report from Deloitte, many building owners believe tenants will pay a 6 to 15 percent rental premium to be in a smart building. So, owners should consider investing in smart systems for energy, security, parking, and maintenance now with plans to add tenant data analytics that assess preferences and offer customized experiences in the near future.

The commercial real estate industry has been slow to embrace the need for smart building features. If we compare the consumer buying experience of computers and mobile devices to building owners, we would note that when buying a new laptop/tablet/ phone, most consumers buy the fastest, smallest, largest memory capacity device they can afford. They may not know exactly what applications they want to run, but they are confident that someone will develop an app or create something awesome that they will want to use before the lifetime of that device expires.

Buildings, conversely, are value-engineered continuously to offer the lowest possible common denominator. This doesn’t consider the cost to retrofit (fiber, sensing networks, energy efficiency, flexibility/ adaptability) after the substantial completion of a project. But, as investors increasingly demand smart technologies, developers will need to factor the cost of this upgrade into their future projects or risk earlier obsolescence and lower sales prices. Long term life cycle costs need to be considered–play the long game.

Tenants want the immediacy of access to data they can get to on their mobile devices to personalize their spaces or access building or community amenities. How building owners collect and use data to improve the tenant experience while maintaining privacy is an ongoing issue that needs to be continually evaluated. Cost savings in building operation by incorporating smart technology features and analyzing performance data is another key reason why an investment in the infrastructure to access and analyze data is important.

Investors have different criteria for desired returns and time frames, but maximizing value now and in the future will mean delivering outstanding tenant experience as well as sustainable building performance.

Dan Noble is president, chairman, and CEO of HKS Architects.

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