Amenities can make or break a project for certain clients. Just ask architect Roger Heerema, principal at Wright Heerema Architects. As he envisioned the Shuman, a new building in the upscale Chicago suburb of Naperville being remade by developers at Franklin Partners, he wanted something that had undeniable curb appeal.
The space would eventually include a reworked lobby, a new fitness club, an engaging entrance experience not unlike what you’d experience at a hotel, and an upscale food-and-beverage program with a rotating cast of Chicago-area restauranteurs. It’s a dynamic experience that’s much like high-end hospitality. Or, he says, as close as one can get with suburban office space.
The Shuman, branded as a “socially-activated building,” represents what Heerema deems the “office amenity arms race”: Over the last decade and change, between the embrace of and backlash over open office plans, changing work habits, and the rise of coworking, our workspaces have been reimagined with more appeals to comfort, choice, and luxury. Design trends once relegated to either home, office, retail, or hospitality categories have merged, and today influence a middle ground of activated, amenity-laden space.
But the Shuman, which Heerema designed to be a departure from what’s normally done in the suburbs, shows how what was once exceptional is now commonplace. A strong labor market, increased competition for top tenants, and increased office space means landlords everywhere are doubling down on the latest wellness, fitness, and social features, mirroring the way companies want to use their offices to portray themselves as aspirational and open.
“Ten years ago, it was enough to have something, anything, a check-the-box amenity like a fitness center,” Heerema says. “Today, landlords [are] looking at amenities with much more interest than they did before.”
Competition breeds commercial changes across the country
This year marks the fourth consecutive year with more than 50 million square feet of new office space finishing construction across the nation, according to commercial brokerage JLL. Commercial real estate services and investment firm CBRE predicts 59.7 million square feet will open before next year, which would be the largest annual addition since 2008. At the same time, the tech sector, where many of the more playful office space trends originated, is taking up more total space, accounting for nearly 27 percent of the 311.9 million square feet of new leases signed last year.
More demand and more new space have led landlords and developers in every market to invest in more inviting office buildings, according to Todd Burns, president of JLL’s project and development services, from renovations to building more plug-and-play spaces, so tenants can customize their offices once they move in.
“It’s not limited to the 40-story high-rise downtown,” he says. “Even the smaller, class-B buildings are doing renovations, adding features, and reworking lobbies so you can sit down and work near the entryway.”
Nearly any aspect of an office can get amenitized, says Heerema. With the commercial real estate sector in many major cities posting single-digit vacancy rates that have recently begun rising, owners looking to make returns on big commercial investments see amenities as a quick way to create value and stand apart. That includes bowling alleys, golf simulators, and, increasingly, more elaborate rooftop decks. A top-floor tenant lounge at 123 North Wacker Drive in Chicago that Heerema designed for Lasalle Investment Management features a two-story, 5,000-foot lounge with a glass wall that opens to the outdoors. Even washrooms have become something to brag about.
Marques Williams, a global broker in the media and technology group at commercial real estate firm Cushman & Wakefield the competition to acquire space ,and therefore talent, is the primary dynamic driving the market.
“The entire spectrum of creative office supply has been impacted by coworking,” he says. “However, it’s happening at a time when industry-specific advances, merger and acquisition activity, and IPOs for media and tech companies are at an all-time high.”
The chase, says Williams, has led landlords to “reverse engineer” architectural and design strategies for specific tenants.
“As companies battle it out in the war for talent, they need to be cognizant of the impact an office environment has on recruitment and retention,” says JLL’s Burns. “Choosing the right office style means real bottom-line impact.”
How office amenities are evolving
A good way to measure the increased investment in amenities is to look at tenant improvement (TI) allowances, the sum landlords agree to spend on updating a space during negotiations with tenants. A JLL study found spending on TIs rose 10 percent in 2017 and 13 percent in 2018.
“TIs are clearly going up because there’s more space in the market that’s available,” JLL’s Burns says. “Landlords have to compete more and more for tenants.”
That means tenants get pretty much whatever they want. Take Austin, a poster child for tech-led growth, with new or expanded offices from Apple, Facebook, and many others. According to Troy Holme, the vice president of CBRE’s Austin office, vacancy is in the single digits across the metro area, and under 5 percent in certain areas.
“It they’re into golf, the building will get a golf simulator, they’ll get dog runs, anything that keeps people happy,” he says. “Right now, people are warehousing space in advance. We have a pipeline two to three years out of new space coming online in Austin.”
Landlords can follow numerous routes to better their office assets. Some are going green and banking on the appeal—and health benefits—of cleaner, more sustainable interior space. The market for third-party verification of various green building standards is expected to reach $254 billion by 2020, according to the Green Building Alliance.
Others have banked on tech, including ultra-fast broadband and wireless connections, smart windows, and smart home-style apps that make it easier to book meetings and track space usage. According to a CBRE study quoted in the New York Times, audiovisual costs for new offices have skyrocketed, going from an average of $5 per square foot five years ago to $10 to $20 per square foot today. Newer, high-profile offices, like Bloomberg’s London space and the Edge in Amsterdam, showcase a focus on data-driven design and services.
The burgeoning market for such technology only reinforces that it makes a real difference. Venture capital investment in real estate technologies hit $9.6 billion in 2018, according to CREtech, and, last week, Cushman & Wakefield announced a partnership with Stanford University’s Disruptive Technology and Digital Cities Program to start working on transformative technologies within the commercial space.
Living in a WeWork world
Few companies symbolize changing work styles and amenity-heavy offices more than coworking giant WeWork, which mainstreamed the idea of company beer taps and creative communal workspaces. Originally marketed as a home for entrepreneurs, the company has recently moved up the value chain, with nearly a third of its membership coming from enterprise clients (businesses with 1,000 or more employees) and a growing business managing custom spaces for big businesses. Along with tech office tropes like stadium seating, the company’s design cues and approach have become de rigueur.
Liz Burow, a vice president and the company’s director of workplace strategy, says WeWork’s design success comes as much from strategy as it does from supplemental drinks. Landlords, and the coworking company, can add amenities, but need to think through what they do, why they work together, and most importantly, how they bring people together.
As with retail today, commercial space providers are competing with the couch, and need to figure out what they can offer that will get people to leave home. Increasingly, she says, the answer is experiences and community. Amenities alone aren’t the answer.
“I call it the Disneyland effect,” she says. “Sure, Disney looks great, but nobody visits just to look at the environment and walk around. Disney works because the company has activated the space.”
Burow says design needs to be about community and connection, creating spaces and activities that provide a social nudge. Great common space or a cafe can be transformative, but not merely by dint of their existence. They need to be properly programmed. That’s why WeWork has invested so much in ancillary companies and services like MeetUp, the digital community site, and the Flatiron School, the coding academy, as well as various meetings in WeWork locations focused on topics of interest to startups and entrepreneurs.
Burow uses icebergs as a metaphor for the usefulness of new-wave office amenities: The features you see in a modern office are the ice above the waterline. But the culture, programming, and vision that make those spaces work, that’s the part that you don’t see. Amenities can help recruitment and retention to a point, but culture, at the end of the day, is what makes everything click.
“An office should be the physical manifestation of a company saying ‘we want you to feel comfortable and relax,’” Burow says. “It’s about driving to something much deeper, that we trust you to do your work, and be where you need to be. The company needs to solve that, and not just with the way it designs its office.”