Creative Office, Progressive Office, Lifestyle Office…call it what you want...but this new way of crafting a unique office environment has already made a lasting impact, and its revolution is just getting underway. That is according to Brett Ward, managing director at DTZ. In the exclusive commentary below, Ward takes a closer look at development and design trends in office and some of the larger upfront construction costs that are required in today's new creative build-outs.
The views in the commentary below are the author's own.
In a world driven by the all mighty dollar, with ever increasing competition and what seems to be continuously shrinking profit margins, why would a company want to pay a higher rent when the office building down the street can put a roof over their head for half the price? When considering this question also consider what Google, Amazon, Apple and many other hyper successful companies have in common: they place a higher value on attracting and retaining top tier talent. These companies understand that to be the best requires having the best, and the old office building down the street will not differentiate their company from the competition.
Providing a company and its employees an environment that inspires creativity, boosts morale, increases productivity and promotes cross collaboration is priceless. This is precisely the foundation in which the creative office movement sparked. Its origins may not be traced back to a specific location, but ultimately ground zero for this revolution lies with the bold leaders of their respective industries and companies who realized this premise and turned this vision into a reality.
In San Diego, this revolution first started on a speculative basis in Sorrento Valley, but on a small scale. The developer repurposed two obsolete industrial buildings into office buildings with limited build-out and achieved rents 20% to 30% above the competition. For years, this was the only speculative creative office with the exception of tenant specific build-outs. When West Los Angeles, and specifically Playa Vista, gained notoriety of its huge expansion of repurposing buildings, it put creative office on every Southern California developer's radar. Now we are seeing several landlords attempting to build creative office on a more basic level, on a suite by suite basis, and its working. On average, these landlords are achieving rents that are 15% to 20% above their previous traditional office rents. This has propelled a select group of developers to push the envelope to the next level, a level proven in places like Silicon Valley and Los Angeles but not yet tested in San Diego.
Creative office build-outs typically require larger upfront construction costs for the ownership but, as mentioned, demand a higher rent from the tenant. In addition, these larger upfront costs coupled with the overall usability of the layouts minimize the re-tenanting costs for the landlord. Given that the history of creative office is short, the data is limited, but in efforts to re-tenant creative office suites compared to traditional office suites, capital for tenant improvement is significantly less, ranging from 35% to 65%. Creative office tenants are focused on flexibility, shared community areas, designated break areas, outdoor workspaces and recreational areas, all of which translate to the next tenant with ease.
The heightened demand for this space and the ability to have a “line out the door” for alternative tenants radically increases the landlord's leverage in a renewal negotiation, increases tenant retention and if worse comes to worse, reduces lease up timelines.
Keep checking in with GlobeSt.com for all its 15-year anniversary coverage with more on development and design trends not only in office, but other product types as well in the upcoming few weeks.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
