The commercial real estate sector must adjust to a trend in which corporate tenants increasingly see buildings as tools to recruit and retain talent and boost workforce productivity, panelists said at the ULI Spring Meeting in Nashville. Real estate developers need to focus on designing innovative, customized spaces and offering amenities that help their tenants meet their strategic goals concerning human capital.
Rich Monopoli, senior vice president for development for Boston Properties, noted that things have changed since the days when companies chose locations based on factors such as proximity to the chief executive’s home or keeping costs as low as possible. Instead, they now see well-designed, environmentally sustainable office spaces as a branding opportunity. In addition, companies are looking for space that will facilitate collaboration and create an ambience that will help them attract, develop, and maintain talent, he said.
To deliver a product that meets such expectations, developers need to rethink their relationship with their tenants and do extensive research, Monopoli said. Boston Properties began to shift its approach during the last economic downturn in the late 2000s, when the lack of activity gave the company time to reflect, he said. “We spent a lot of time trying to become a client-focused company,” he said. “We really wanted to understand how our clients were using our space—what are they doing there, how they are using our space to advance their business goals.”
Toward that end, Boston Properties teamed up with architectural firm Gensler and office furniture firm Steelcase to do extensive interviews with the real estate company’s tenants.
“We developed a simple framework that we think reflects what our clients are looking for. It helps us to make design decisions, capital allocation decisions, investment disposition decisions,” he said. The framework has three criteria: Location, place, and space. “We grade ourselves on those three things on all our assets across the portfolio,” he explained. If the company finds that a particular property is deficient, it may either invest in upgrading the building or try to sell it.
That sort of analysis can help guide renovations of existing buildings. As an example, Monopoli cited a project in New York City, One Five Nine East 53rd Street, a 22-year-old, 230,000-square-foot (21,000 sq m) mixed-use office and retail building. Despite the prime location along Lexington Avenue, “the sense of place in this zone really wasn’t up to snuff,” he said. “The ground plane was tired, and the retail in the atrium was six feet [2 m] off the sidewalk, so that as you walked by, you were looking at people’s feet.” Undersized entrances exacerbated the problem by making it difficult to engage pedestrians and bring them into the building.
To remedy the problems, Boston Properties brought in Gensler to design a $250 million renovation of the building that is now near completion. The objective was to reshape the property to engage both tenants and the broader community. It involved steps such as remaking the exterior plaza and upgrading the 53rd Street entrance with a three-bay, 25-foot-high (8 m) glass entrance to facilitate access to the interior atrium space, which has been remade as a trendy market that offers what Monopoli called “a really interesting, vibrant food and beverage experience.”
As a branding tool for office tenants, Boston Properties created an independent entrance at 53rd and Lexington so people can enter the office portion of the building directly without having to walk through the retail area in the base.
From the occupier perspective, Jim Morgensen, vice president of global workplace services for LinkedIn, said his company places a premium on finding buildings with roof decks and outdoor spaces, and customizes its spaces around the world with design features that reflect local culture. He noted that fast-growing companies need high-quality offices so they can more easily sublet the spaces if they outgrow them.
Companies are less concerned about how much they pay for space, and more about how it affects their human capital. Lexi Russell, an associate director of research and analysis for real estate services firm CBRE, said that for the average technology company, real estate only represents about 5 percent of operating costs, far less than what its spends on hiring and retaining talent.