Guest post by Liam Kerins
Real Estate, by nature, has always been a game of keeping up with the Joneses. If you’ve ever found yourself treating your lawn, buying extravagant holiday decorations, or giving your mailbox a makeover, then you know exactly what I’m talking about. Commercial Real Estate is subject to the same principle, but in recent years the industry has seen an exponential increase in the amount of dollars and square footage devoted to improvements and amenities. Real Estate professionals in smaller markets may look at Vornado and SL Green’s 150 million Dollar renovation at 280 Park*, or Blackstone’s similar upgrade to the Willis Tower*, and think these major players have lost their marbles. If we assume these are calculated decisions, and not simply investors having a flair for the finer things, we can dive deeper into the factors driving the increase in spending.
- Corporate tenants are moving back to the city
If you are a long time resident or employee in a major urban center, you may already be familiar with the recent population growth in American cities. The average annual growth rate of 0.56% that cities saw from 2000-2010 has nearly doubled in the past decade. There are plenty of trends that have led to this, but one directly relates back to the real estate industry.
For years, corporate America was choosing sprawling suburban campuses over cramped downtown high-rises, recently this has not been the case. McDonalds, General Electric, and Motorola are just a few of the paramount companies moving most of or all their corporate offices from suburbia to the metropolis. Compared to the last century, cities are now much nicer places to live, and more willing to provide incentives for businesses. Perhaps most importantly, young people want to be where the action is, which is still the city. To secure these highly coveted corporate tenants, Asset Managers are going all out with amenities in an effort to deliver the best first impression possible.
- Investors are prepping for the future
Commercial Real Estate firms across the country are dealing with the looming reality that our workspaces soon will be dominated by millennials. The newest generation to enter the workforce is already the largest, and that percentage is only growing. Millennials are bringing a major shift in office culture, from work to life balance, to work to life integration, and office investors are looking to amenities to help build that culture.
An easily accessible fitness center, a cafeteria, and “nap rooms” as made famous by Google are all common examples of how an office space can integrate into a connected lifestyle, but that just scratches the surface. Digital medial providers such as Captivate can connect tenants to their localities and national headlines without having them leave the office. Fun is important too, and not necessarily a bad thing either. Young people are drawn to simply additions such as a ping pong table or a basketball hoop in the parking lot, and companies who change their office spaces to accommodate fun are around 15% more innovative and experience higher net profits. Long story short; if you want to compete in the future, you invest into your office culture now.
- Tenants invest in their own amenities
As our generation’s relationship between life and work shifts, not only has the competition for tenants adapted, but the competition for talent has as well. In the past, you had to work in the booming tech industry to receive those lifestyle centric employee benefits that you read about online, but in recent years this principle has spread across all industries. To attract the best talent possible, companies are providing in-office massages, yoga classes, and sometimes are even going as far as to devote their own square footage to recreation or fitness space.
What’s better than providing your own employees with these lifestyle benefits? Leasing in a building that already provides them. Let’s say you’re a scout for a Fortune 500 company, looking for new office space to lease for an upcoming expansion. You know the company wants fitness to be integrated at the space, so are you going to set apart a portion of your own costly square footage, or will you lease in the building that has a gym available to all tenants? Office investors know the answer to that question, and they also understand that these often are the factors that determine whether you land that big tenant, or if it goes to the competition.
Keeping up with the Joneses
In major US markets, keeping up with the Joneses can be translated directly to dollars. Fall behind, and it will show up on your bottom line. So, are these office investors crazy? Maybe the first one was, but the rest have had no choice but to keep up. Amenities that were once scarce, such as integrated media, indoor cafes and fitness centers, are now becoming commonplace. As there are no signs of an imminent slow-down, who knows what we will see in the next decade. Although, as office professionals, all we can do is look forward to it.
Known for its vast network of 10,000 elevator and lobby displays located in 1,600 premier office buildings across the U.S., Captivate brings life to work by connecting over 10 million unique monthly viewers to the world outside their office. By engaging its viewers with timely news and actionable information, Captivate provides advertisers with a highly desirable and difficult-to-reach audience of affluent and influential business professionals through creative, research-driven and Nielsen-measured advertising and marketing programs. Founded in 1997, Captivate is owned by Generation Partners and Gannett.
 USA Today – “Census Shows US Cities continue to grow”
 The New York Times “Why Corporate America Is Leaving the Suburbs for the City”
 Pew Research Center “Millennials surpass Gen Xers as the largest generation in U.S. labor force”
 PivotDesk “Millennials In The Workplace: Here Are 5 Office Space Trends They’ve Inspired”