Developers Eschew Traditional Methods of Attracting Tenants

SAN JOSE—In the past, office developers created differentiators with grand lobbies, fitness centers, outdoor gathering spaces and smart elevators. However, these features can gobble up as much as 12% of the rentable area and add to the maintenance expense of the building, GlobeSt.com learns.

For example, lobbies are estimated at about $500 per square foot ($90,000 typical cost), fitness centers clock in at $150 to $350 per square foot ($100,000 typical cost), outdoor gathering spaces cost $200 per square foot ($50,000 typical cost) and smart elevators are approximately $100,000 per car, according to Milpitas-based View, a manufacturer of smart windows.

“While it’s true that these features provide an exciting tenant tour, however increasingly, common use fails to set properties apart from peers,” Brandon Tinianov, View vice president of industry strategy, tells GlobeSt.com in this exclusive. “As a result, the market has shifted. Today, tenants are more focused on the experience inside the workspace.”

New data confirms that employees don’t really want or use the common office building or employer amenities of the past and oftentimes, wellness programs are not being utilized to the fullest. In fact, more than 80% of large employers offer employer-sponsored workplace wellness programs, but only 4 to 8% of employees actually participate in those programs, according to an Illinois workplace wellness study. And, building common-area amenities such as gyms, cafeterias, outdoor spaces and even onsite child care rate low among employee perks, according to Future Workplace.

“The fundamental flaw for these approaches is that additional programs and displaced features are opt-in for a minority of employees and they take time away from work,” Tinianov tells GlobeSt.com. “People spend most of their time at their workspace working alone or in teams, and then they want to go home.”

For some, this means that company valuation has shifted from a tangible asset value to intellectual property and human capital value. As a result, companies are making a concerted effort to drive engagement. Companies with the best employee engagement are 21% more profitable, have 41% lower absenteeism and 59% lower turnover than typical engagement peers, according to a Gallup poll.

Strategies range from the usual bonuses and profit sharing to wellness and professional development programs, and paid time off for volunteering. Beyond all of these initiatives, companies are also making the office a place where employees are excited to come to work and inspired to do their best.

Today, employers and tenants are focused on bringing amenities and well-being to employees at the place where they are most commonly located: their desks. To do that, companies are spending top dollar (up to $200 per square foot according to JLL) on creating and furnishing workspaces where employees are excited to work.

Now people “expect companies to provide dynamic office settings that help them to be more productive and creative,” according to a recent Gensler US Workplace survey.

A shift in company valuation has also led to a related shift in the approach to talent acquisition. Top companies now compete and design employee workspaces around employee engagement and ultimately, bottom line growth. According to a CBRE study, the top three drivers of workplace strategy are talent attraction and retention (55%), promoting collaboration (53%) and operational expense savings (40%).

The right core and shell can be the ideal platform to address today’s employee-centered real estate market. Today’s host building enables employee engagement with several key features including high speed data, a healthy environment including filtered air, an open floorplate, high ceilings and floor-to-ceiling windows.

Moreover, top workspace features include standing desks, huddle areas, natural materials, high-tech data and teleconferencing, and workplace daylight and views. A recent study featured in HBR found that daylight and views are the top employee perk above cafes/food, standing desks and outdoor space, and fitness centers.

Instead of being an opt-in strategy for a minority of workers, access to light is an all-in approach that improves employee health, wellness and productivity, according to Cornell University. Beyond a general health improvement, light-optimized access to views has also been shown to reduce eyestrain, headaches and drowsiness by 50% or more. For the employer, a happier, healthier employee is one who’s also eager to spend more time on work, come up with more creative ideas, sleep better at night and take fewer sick days, according to View research.

Harnessing that trend early is has been profitable for smart developers, leading to faster lease-up, rent premiums and greatly improved asset value. In Silicon Valley, developer Steve Dunn of Steelwave did just that with a class-A office featuring LEED Gold certification and smart glass throughout. That gamble paid off handsomely for the developer. His America’s Center phase two signed its first anchor tenant in just 11 months–a rate four times faster than its local market comps.