Coming out of the great financial crisis in 2010, office investors and developers faced record-high vacancies, record-low leasing demand, and downward pressure on rental rates. To combat tepid demand and increase occupancies and rents, investors and developers needed to innovate, activate, and accelerate value creation.
Taking a few cues from the multi-family sector, office investors and developers looked to their amenity offerings as an efficient way to differentiate and elevate.
- Lower-level fitness centers were relocated above-grade, greatly expanded, and staffed
- Full-service bars with opulent designs and furniture replaced hospital-style cafés
- Conference rooms were expanded, provided elevated quality, and activated technology
- Bike rooms with valet services expanded
New amenities started appearing in office buildings as well—offerings such as podcast rooms, golf simulators, and basketball courts, like the one found at 167 N Green in Chicago, were added. To stay competitive, office amenities went from “nice-to-have” to “must-have” and were just as critical to a decision as building’s location.
Then and Now
Now, in 2022, office investors and developers are facing the after-effects of COVID. They grapple with record-high vacancies, record-low leasing demand, and downward pressure on rental rates identical to those in 2010.
While high-end, differentiated amenities remain critical, these amenity offerings are no longer considered innovative or elevated. In fact, many employees aren’t all that focused on them. They have created highly efficient home offices that function as good, if not better, than their offices from 2020, leaving many to wonder, “Why do I need to go to the office when I have everything here?”
To entice employees to come in, employers have looked for innovative assets that offer experiences employees cannot replicate at home. Owners in major markets across the country have shifted their focus to new neighborhoods and focused on amenities outside. This includes outdoor space (private and public) and neighborhood amenities–offerings include private balconies, outdoor fitness areas, expansive parks, expanded local restaurant partnerships, private scooters, and even rooftop pools.
According to CoStar, the two fastest-growing office markets in the entire U.S. are Fulton Market in Chicago and Midtown-South End in Charlotte. Both have gone from virtually no modern, high-quality office space to 4.8 million and 4 million square feet of space, respectively. These areas, where many young workers already live, shop, eat, drink, and find entertainment, have become true live-work-play neighborhoods for major employers, which is precisely what employees want.
As workers look for more options to step away from their desks and be outside, employers must find creative, innovative assets that give their employees something they can’t get at home. Traditional central business districts face severe competition from these trendy neighborhoods that previously housed artist lofts or pioneering tech companies. Employees want something they didn’t have two years ago—and until office products in CBDs across the country provide them with more outdoor space and active retail to start, tenants will continue to flock to what’s most appealing.