Winning the Space Race
- Feb 07, 2017
The office sector has experienced tremendous growth and innovation in the past few years. Driven by the demand for creative workspaces, the office market has evolved as owners redevelop and reposition their office buildings to meet the changing preferences of their tenants.
The rising popularity of co-working spaces, for example, has challenged the boundaries of traditional office environments, prompting landlords to rethink their office spaces.
Today’s forward-thinking office users also understand the central role of culture in recruitment and retention, and are increasingly seeking higher-image spaces that reflect their brand and encourage innovation. Office owners must take note of these trends and cater to the tastes of the modern workforce in order to successfully lease their buildings.
During our experience in acquiring and repositioning value-add properties throughout Los Angeles, we’ve identified three innovative strategies that office owners are pursuing to drive leasing and maximize occupancy.
Commercial real estate owners are increasingly integrating technology into their daily business practices and catering to the tech startup community to drive leasing at their office buildings.
According to a report by JLL, strong job growth in the technology sector continues to be the number-one driver of office leasing. The tech market has experienced a 4.5 percent year-over-year increase in employment gains, accounting for over 4.5 million square feet in leasing activity in tech-centric markets such as the San Francisco Bay area, Seattle, and New York City at one point in 2016.
For many tech companies, access to high-speed internet service can be the determining factor in a leasing decision. One of the primary factors in our decision to acquire an office building in Culver City, Calif., was the city’s plan to build a fiber optics loop that will run right next to the building. By providing fast, convenient fiber access throughout an property, owners can attract and retain tech-dependent tenants.
Due in large part to the nature of their work, technology tenants place tremendous value on technological integration and are always looking for ways to optimize efficiency and productivity. By incorporating charging stations, video conferencing options, and tech devices in shared meeting rooms, owners can appeal to the tech workforce and streamline their business operations, which in turn promotes tenant retention.
A Whole New Menu
Integrating on-site food amenities and diverse options can play an essential role in boosting employee morale, which in turn enables office users to attract and retain employees.
Millennials’ food preferences, in particular, are shifting from national chain restaurants toward choices that offer fresh, locally sourced ingredients, customized menu items and elevated customer service. By catering to these changing tastes, owners can offer additional value to tenants, while also generating an additional revenue stream from food tenants.
For example, we recently decided to convert the ground-floor of one of our office buildings in downtown Los Angeles into retail space. In selecting the restaurant to fill the space, we assessed the food preferences of our other tenants and found that many of their employees preferred fresh-casual food options over popular fast-casual chains. As a result, we elected to bring in a poke eatery that would meet the food preferences of our tenants’ employees.
Bringing the food directly to tenants is yet another way that some landlords are differentiating themselves from the competition. Because Millennial workers prize the convenience offered by food trucks, many new office buildings are integrating loading space for the trucks.
Create a Culture of Collaboration
When it comes to the modern workplace, culture is everything. A survey by CBRE found that 78 percent of millennials value workplace quality when choosing an employer, and 69 percent would trade other benefits for a better workspace. Creating a workplace environment that fosters collaboration and innovation is crucial to building long-term tenant relationships.
By offering open, collaborative spaces, indoor/outdoor amenity areas, and flexible tech buildouts, owners can help create a work culture that will appeal to the needs of their tenants and their employees.
The demand for creative live/work/play environments reflects a fundamental shift. Today’s Millennials seek office environments that encourage a balance between work and recreation.
For example, the CBRE survey found that one-third of millennials prefer collaborative workspaces, and that more than one-third want fitness centers at work. With that in mind, many office owners are providing on-site gyms, coffee bars and other amenities. In addition, the mobile nature of today’s workplace makes it essential that landlords provide tenants with the flexibility to work in communal spaces and access high speed Wi-Fi anywhere in the building.
As the office sector evolves, landlords must think creatively in order to drive occupancy and generate long-term value. Integrating the latest technology, providing on-site food amenities, and investing in improvements that foster creativity will go a long way toward attracting and retaining the high-quality tenants that are essential to stable cash flow and solid returns on investment.
Tim Lee is vice president of corporate development and legal affairs at Olive Hill Group, a Los Angeles-based investor, operator, and developer. Since 1996, the firm and its affiliates have invested in more than $2.4 billion in a diverse portfolio of office, retail, hospitality and multifamily assets encompassing upward of 15 million square feet.