How Top Employers Are Reinventing “Premium” Office Space
The high end of the commercial real estate market isn’t what it used to be. Once upon a time, occupying the top floor of a downtown office building seemed like the ultimate goal for every growing company. Today, more and more companies are searching for office space that’s closer to ground level—and better integrated with places where employees live, shop, and play.
Case Study: Growing Vacancies in Boston’s Financial District
At the end of 2016, almost 20% of office space on the top floors of buildings in Boston’s Financial District was vacant—the highest rate in nearly a decade. Data from Colliers International showed that during 2016, the amount of vacant space in the historically prestigious business area increased by 850,000 sq. ft., leaving an overall vacancy rate of 11.7%.
The Boston Globe notes that part of the explanation is companies moving to “lower-level digs in the trendy Seaport District.” In addition to lower real estate costs, the Seaport is seen as offering an attractive mix of commercial and social amenities for companies’ workers—especially the Millennials who dominate entry- and mid-level positions at many organizations.
The migration to the Seaport has included a number of high-profile companies. PwC recently moved its Boston office from the Financial District to the Seaport, and when Reebok moved its headquarters to Boston, the company chose to occupy 220,000 sq. ft. in the Seaport District’s mixed-use Innovation & Design Building—rather than a “premium” space in the city’s Downtown or Financial District.
According to the Globe, the total inventory of Seaport office space grew more than 55% over five years and almost 80% over a decade. Occupancy is keeping pace with expansion—for the moment. Companies leased about 400,000 sq. ft. of additional Seaport office space in 2016. However, ongoing development projects will add more than 800,000 sq. ft. of new office space to this burgeoning district in the coming years.
At the same time, the real estate market in nearby Cambridge is tighter than ever. The vacancy rate in this world-famous health and tech hub is only 4%—in spite of the fact that average rent in the city is 20% higher than Boston. Proximity to this red-hot market—and the resulting spillover of corporate tenants—is one reason why experts say softening demand in Boston will only be temporary. Another factor is the city’s ongoing efforts to revitalize downtown neighborhoods and support mixed-use commercial development.
Analysis: Employers Are Focusing on “Walkable Neighborhoods”
Although many cities’ central business districts experienced stress as a result of residential and corporate movement to suburbs, today there is an increasingly visible trend of companies re-occupying urban spaces. A study conducted by Smart Growth America and Cushman & Wakefield found that there are many reasons why companies are focusing on moving into walkable urban areas, including:
- Advantages in attracting and retaining talented young employees
- Unique opportunities to build corporate culture and identity
- Better commuting and transportation options
- Improvements in centralization and efficiency
- Inspiring renovated architecture
Some major companies are hoping to achieve the same goals by moving in the opposite direction—out of cities altogether. Apple recently completed a 2.8 million sq. ft. campus designed to house 12,000 employees in a natural, sustainable, and collaborative environment. Meanwhile, Google has announced plans to build a “mini city” nearby. Much like Apple Park, the planned Google Charleston East campus will incorporate large natural outdoor areas and substantial space for retail stores, restaurants, bike paths, and other amenities.
Research conducted by CBRE examined “how Millennials live, work, and play”—yielding further insight into why companies and their workers are drawn to mixed urban spaces. Surveys found that 78% of Millennials see workplace quality as important when choosing an employer—and almost 70% would give up other benefits for a better workspace.
Members of this young, social generation are also attracted to social and commercial amenities in city centers. CBRE found that Millennials spend about 10 days per month and 50% of their disposable income on “going out,” recreational shopping, and other leisure activities. Interestingly, surveys showed that 70% of Millennials’ shopping takes place in physical stores, despite this generation’s reputation as “digital natives” who prefer to do everything online.
Inevitable demographic shifts will add more momentum to the trends toward mobility and work-life integration. As the center of gravity in the U.S. workforce shifts from retiring Boomers and the relatively small cohort of Generation X to the rising majority of Millennials, it’s likely that companies will continue moving (back) into city centers—especially “new” or revitalized neighborhoods like Boston’s Seaport.
To make the most of these opportunities, employers will need to ensure that their workplace experience meets the expectations of an increasingly mobile and social workforce.