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Recent tenant demand for improved HVAC filtration and ventilation, combined with today’s low interest rates begs the question: Is it the right time to make a significant capital investment in your building’s HVAC system?
On one hand, low interest rates are always an opportune time for renovations. And yet, due to low occupancy rates and a pandemic raging across the United States, many building owners and operators are understandably wary of jumping into a major capital expense.
Ironically, low occupancy rates in tenant-occupied commercial buildings have provided the perfect setup for capital improvements.
Making the case for capital improvements
There are five main reasons that the time is right for facility managers to seriously consider HVAC capital improvements at this moment. They are:
1. Get it done in less time. Wholesale improvements can prove more successful without tenants or at reduced occupancy. With fewer bodies to heat and cool and work around during equipment installation and temporary power outages, capital improvements will be logistically easier and likely will take less time to complete.
2. Low interest rates. When money is cheap, facility renovations can go a lot further. This may be your chance to complete the repairs you previously thought you couldn’t afford.
3. Tenant demand for improved HVAC. As tenants return to work, air filtration, ventilation and purification will be top of mind. Businesses with existing leases will demand proof that it’s safe to bring their employees back to the office. Businesses considering new leases may be even more demanding.
4. A chance to go green. While working from home is the rage right now, and some businesses have even pledged it to their employees for life, real estate experts across industries say we are more likely to see a shift in office needs, layouts, and amenities over time rather than total withdrawal from commercial office real estate. Once businesses return to the office, they’ll be looking to re-enter healthier facilities. Rehabbing your HVAC system now will give you the competitive advantage you need and the opportunity to chase green building standards you may not have thought feasible before. USGBC LEED and WELL certification will help your building stand out among the healthy and environmentally sound options around town.
5. Improve energy efficiency and operational costs. New HVAC systems and renovated infrastructure always provide an opportunity to reduce energy expenditure and, therefore, operational costs. Over the next four years, oil, natural gas, and electricity prices may be more unpredictable, and as a result, it may prove more advantageous to reduce building energy use today.
Not all capital improvements are created equal
While there is a great case to be made for completing capital improvements ahead of America returning to work, there are a number of considerations building owners and operators need to be aware of when doing so.
First and foremost, know you’re playing the long game — especially when doing it amid a worldwide pandemic. According to JLL’s United States Office Outlook Q3 2020, the coronavirus pandemic has led to a 28.9 million-square-foot decline in office occupancy, the largest single-quarter drop on record, as well as a 16 percent surge in vacancy.
We know that a pandemic once every 100 years will not derail the U.S. commercial real estate market for good. Yet the major unknown in this scenario remains: When will it rebound? While we lack a crystal ball to answer this question, we do know that a property that remains frozen in time circa March 2020 will be significantly less desirable than a comparable facility that has upgraded its HVAC system and other infrastructure in the name of creating a safer and healthier space for occupants.
Similarly, Band-Aid solutions will not likely pan out in the long term, either, as tenants will see through them over time. Tenants will be looking to move to a facility that prioritizes building occupant health, including visible upgrades to public spaces, restrooms, shared amenity spaces, elevators, and more.
5 Reasons Why Now Is the Time for HVAC Upgrades