Healthy Buildings are Here to Stay

2021 outlook for real estate

By Diane De Felice 

As we approach year-end, watching the pandemic play out, we have seen new industry demands and drastically altered trends. While real estate is still adapting, it is not immune to the new direction of consumer preferences. “Healthy buildings” are front and center in COVID-19. While “healthy” can mean different things to different consumers (a home buyer vs. an office tenant vs. a hotel guest or grocery shopper, for example), the long-brewing concept of optimizing indoor environmental health is now a necessity.

What are healthy buildings?

According to Harvard University’s Dr. Joseph Allen, healthy buildings integrate health/well-being via core principles that range from air and water quality to lighting, views and safety. Healthy buildings are tied to measurable gains in occupant productivity, revealing an economic benefit to the building’s value, and an incentive to the businesses within terms of employee performance.

Developers are adjusting by showcasing key features that address COVID-19 issues and changing ways they market properties.”

“Shelter in place” prompted many to take hard looks at both what they want in a home and where that home is located. Residential sales are booming in certain markets, says Pardee Homes VP Jeff Chambers. Studies show a 46% increase in prioritizing home ownership. The negative impact to the rental market is reflected in the increasing vacancies in typically high-demand markets such as New York City and San Francisco (vacancy rates up two–four from last year). 

Developers are adjusting by showcasing key features that address COVID-19 issues and changing ways they market properties. Virtual tours are now mainstream, which expands market reach as barriers of access and time to tour properties are removed.

President Nancy Keenan of Dahlin Group  co-sponsored a national survey to rank the latest consumer design preferences. The study revealed customers prefer features including: germ-resistant materials; enhanced technology/energy efficiency; greater food storage; touch-free smart appliances; and better-equipped kitchens and home offices. Developers such as the Pulte Group launched similar features including more multifunctional living spaces; oversized pantries; larger bedrooms with a small office functionality as well as dedicated home office; outdoor-indoor entertaining capacity; enhanced Wi-Fi and hardwired internet outlets; and antimicrobial nonporous quartz countertops. 

Kati Blum, development director at East West Partners, noted multifamily resort markets in less dense suburban areas are still strong. Their product typically includes large porches, and options including home offices, extra dens, upgraded air systems and enhanced ease of stairway use are on the horizon. 

In September, the CDC released an updated COVID-19 employer guide for office buildings. Its message of “check the building” readiness for occupancy focuses on building systems, which is only half the problem. What about human occupancy upon return? The first step is often spacing needs. Companies that previously factored in approximately 160 square feet per employee are increasing allocations to 200‒300 square feet. This increased need for space may offset any reduced demand for urban offices.

Some building owners, including David Cropper, director of development at TMG Partners, keep their formula simple: ensure tenant occupants feel ready to reoccupy, ensure rent and loans remain current, and be prepared to pivot if more sustained demand changes occur.

Expectations that buildings systematically ensure better air quality and incorporate touchless controls and “smart features” are solidifying. In many markets, COVID-19 officially propelled “smart” features from optional high-end amenities to mandatory features.

When landlords don’t or aren’t required to implement retrofits, tenants are rapidly making their own modifications. Denise Kruger, senior vice president at Golden State Water Company in California, oversees between 30‒40 offices, 12 of which are multi-tenant. New policies were implemented such as prioritizing use of stairs, ensuring single occupancy elevator use, installing partitions and HEPA filters, instituting one-way routes in halls, shutting down certain common areas and temporarily closing physical customer service sites in the interests of public health. 

As restrictions ease, people are craving safe getaways and outdoor access. Matt Walker, executive vice president at Lowe, expects their longtime strategy for hospitality investments will continue to serve them well. Lowe acquires and develops unique suburban assets hotels and resorts offering “authentic” lifestyle experiences. To ensure safety, hotels are implementing new procedures and offerings to streamline check-in and minimize contact via mobile phone check-in and room access. With the need for outdoor dining on the rise, on-site restaurants are expanding outdoor terrace space. Meeting space is also moving outdoors.

The industry is reinventing itself. The Intercontinental Times Square now offers rooms for day office use at substantially reduced rates. Other hotels are setting up remote-learning facilities as another guest amenity.

How the industry will adjust and further adapt may vary among different sectors facing changing issues based upon location, infrastructure constraints and government regulation. Some adaptations are most likely to stick well beyond 2021.

Diane De Felice is a Land Use and Real Estate Shareholder at Brownstein Hyatt Farber Schreck, LLP. She may be reached at ddefelice@bhfs.com.

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