Do Amenities Enhance the Value of Office Buildings? Dynamic Causal Impact of Modern Retrofitting

Abstract The post-pandemic shift to hybrid work has redefined tenant demand, turning offices from mere workspaces into collaborative, experiential hubs. Aging properties now face an obsolescence trilemma: retrofit, convert, or decline economically. Within the global “flight to quality” trend favoring modern, higher-standard space, this study quantifies the economic impact of building modernization. Using shared tenant lounge installation as a proxy for comprehensive modernization packages, we estimate its causal effect on commercial property performance. Focusing on large office buildings in Tokyo’s five central wards, we apply a staggered difference-in-differences framework to a novel, manually constructed panel dataset. Results show that modernization shortens time-on-market by 24.2%–57.0% starting one year after installation, followed by a 1.2%–1.8% decline in vacancy rates from year two onward. Rent premiums then rise dynamically, reaching 7.56% by year five. Placebo-based robustness checks, though limited, substantiate these findings. We further identify a strategic stabilization mechanism: owners first prioritize filling vacancies to restore building vibrancy, then capture rent premiums as tenants’ willingness to pay increases. These findings show that amenity-centric modernization creates functional value that mitigates obsolescence, though measured returns reflect an aggregate upgrade strategy rather than an isolated lounge effect, and apply specifically to high-grade assets in central business districts.