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When purchasing and/or leasing space, what adds value to a building?

Ralph Perna
Ralph Perna

We all have an idea of what makes one commercial building more valuable than another. There are some givens like a large parking lot. Value, however, is often a subjective matter. Whereas a building owner may have invested heavily in features he believes add value, a prospective purchaser or tenant may regard those features as minimally important. Building owners should strive for features which the majority of potential buyers/tenants would regard as valuable.

Building Systems

At every building's core are its mechanical systems (i.e., HVAC, electrical, plumbing, sprinklers, etc.). The performance and quality of these systems account for the comfort of the users in the building, as well as related operational costs. Old equipment, which has not been properly maintained, is likely to fail resulting in uncomfortable and disgruntled occupants, also burdened by higher energy costs. In view of the exorbitant energy costs most New York businesses already incur, state-of-the-art, energy-efficient systems, including energy management systems to control energy consumption, represent value-added features every owner should provide.

Go Green to Add Value

There is a whole green building movement underway and going green definitely adds value. Businesses are seeking spaces that enable them to conserve energy and take advantage of daylighting. This has been documented in several studies. Research has shown that green buildings attract tenants faster and retain those tenants for longer, while also commanding higher rents or prices. This holds true for new construction such as projects implemented under the Leadership in Energy and Environmental Design (LEED) system, as well as renovation projects. In fact, many believe that existing buildings which undergo some green changes (e.g., installation or retrofit of building operating systems, addition of photovoltaic cells, etc.) may gain even more value than new buildings. A well-installed and insulated roof, especially a torched down seamless rubberized roof, also adds value. When professional valuation experts value a building, these various green components are weighted heavily.

Advanced Communications and Modern Conveniences

Today's businesses rely heavily on their voice/data communications systems. Most companies have a local or wide area network (LAN, WAN)) and/or wireless network. Many also have needs for a Broadband Integrated Services Digital Network (B-ISDN) and video-conferencing. A building wired to accommodate the latest information and communication technologies, and those with modern conference rooms featuring these leading-edge technologies, are in high demand.

Other conveniences include modern passenger and freight elevators; computer-controlled to promote a smooth, safe ride. Elevators that also are aesthetically pleasing with real ambiance also add value to a building, particularly one which is trying to attract a certain high caliber of tenants.

Adding Value to Internal Space

The first impression many prospective buyers/tenants have of a building is the reception area. It should be well-designed, well-lit and large enough to accommodate both the receptionist's workstation and guest seating.

Executive areas are also an area which can add or subtract value from a building. Executive offices should be spacious, upscale, be traditional in their design and offer amenities such as an in-suite bathroom.

Other internal spaces that add value are ample meeting rooms, employee lunchroom and storage areas.

Overall, a space should be freshly painted, clean and uncluttered when presenting for sale or lease. These three factors, which cost little to achieve, add great value to a building.

Security and Alarm Systems

Sophisticated security and fire alarm systems add value and conversely, the lack of these systems detract from a building. These systems should be prevalent both internally and externally (i.e., well-lit and 24/7 monitored parking and exterior areas).

Location, Location, Location

Finally, what remains to be the greatest value-adder to any building is its location. A building that is located in well-planned business district or industrial park will be in demand and will command a higher purchase or rental price. For owners who want to be sure their building will retain its value, the "location, location, location" rule should be followed. In a declining market, the values of buildings in the best location decline the least and appreciate the fastest in a climbing market.

Ralph Perna is the executive managing director of Newmark Knight Frank, Melville, N.Y.