After nine years, the Building Owners and Managers Association (BOMA) appears to be gaining on the latest trends in new and existing office buildings. The BOMA 2017 Office Standard was released in October 2017 with some significant changes to how building spaces are measured. In concept, all the changes favor landlords, which is one of the primary goals of any BOMA Standard. But the 2017 version seems to be a bit more equitable by identifying trends in building common areas clearly influenced by both the market and the collective culture of how office work is being done.
More specifically, the 2017 Standard is focused on amenities. It is BOMA’s latest answer to the way tenants are using common areas today, and it’s a clear departure from the last standard, released in 2010. Beefed-up building amenities have been on the upswing even before 2010, but it has only been in the last five years or so that cultural changes in the workplace have redefined how an office should function. BOMA’s response to those cultural changes is to include balconies, covered patios, and finished rooftop terraces in tenants’ rentable square footage calculations, all of which are quite expensive to design and build out.
Owners who do incur these expenses in both new and remodeled buildings can now pass some or all those costs on to the tenants. Those new tenant expenses will affect the common area load factor. The load factor is a combination of usable square feet and a percentage of the square feet of common areas. To put a finer point on that, a tenant who wishes to re-up on a lease could be looking at a load factor of 3 to 5 percent higher for staying in the same space.
Also included in BOMA’s 2017 Standard are major vertical penetrations at their lowest point, like elevator shafts and stairwells. Although vertical penetrations do allow for additional revenue for landlords, they certainly do not appeal to tenants as a practicality. They’re just not that significant.
Every new BOMA Standard includes language that further enhances the landlord’s opportunity to collect more revenue. While the 2017 BOMA is certainly in line with previous standards as a revenue builder, it also satisfies ongoing design and marketing requirements for tenants and brokers on both sides of the lease deal. Arguably, no other recent BOMA Standard can make that claim. Call it market timing or something else, but it’s always a plus when landlords and tenants can share the same vision for common area amenities.
Of course, tenants must pay a premium for those amenities, and they are. In fact, amenities like those specified in the BOMA 2017—and others–are becoming essential rather than optional, which increases competition among owners and their buildings for tenants who immediately recognize the long-term value in higher lease rates. Tenant representation brokers have the benefit of essentially being on the same page as owners when it comes to what tenants really want in today’s buildings. Similarly, brokers who represent owners with vision can more accurately market their product since clearly-defined market demands have been met by the new equally-defined BOMA Standard. And the standard can yield other “secondary benefits” to both owners and tenants, as well.
Balconies and covered patios, for example can serve as break areas for rest, decompression, coffee breaks, lunch or as another space for work. Both new tenants and those in a remodel cycle have the benefit of adjusting their own existing square footage proportionally to what the building’s amenities spaces might offer. If you’re a tenant and half your staff and management are using the building’s amenities spaces multiple times daily, might it be wise to allocate less square footage to the company’s “break” area?
And consider how the rapid changes in office culture line up with the continuous push for more amenity space. The rising popularity of the “agile” workplace in which employees can choose where to work in any given office now extends beyond a company’s walls. That is, employers who do support free-address and no-boundary workplace strategies now include a building’s amenity space as an extension of the company’s own real estate. This is not a concept. It’s already in wide practice, and why wouldn’t it be? Those tenants are paying for the “extra” space, so why not use it?
It’s only been a little over a year since the 2017 Standard was rolled out. The newest work strategies and associated hybrid office designs are still in their infancy. BOMA has certainly done its homework by pinpointing larger and better amenities as new sources of revenue at the precise time when the demand for them is in a steep incline. And clearly, that demand isn’t going away anytime soon. Tenants and their representatives could do well by understanding that embracing these changes is a short-term trade-off for long-term value.
Tia Jenkins is Principal at KIEDING. Reach her at tjenkins@kieding.com