Commercial Real Estate

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Looks At Space in New Ways

The new economy tenants understand this and look at space in an entirely different fashion. They want space that reflects their culture, their ethos, and their values. Slowly but surely, traditional tenants are starting to understand this same value system. When it becomes the norm, which I think is coming sooner rather than later, traditional real estate development will be forced to meet the needs of the tenant and change what they build on a daily basis.

I see technology firms fueling the redesign of office space as well as aiding in the emergence of new office markets across the United States. Some of the office space characteristics of these tech firms are spilling over into the more traditional space users—law firms, accounting firms and ad agencies. I expect to see even more of this spillover as businesses will need to adapt to remain economically viable and to attract talented employees. The three shifting trends I find most interesting are: the new definition of Main & Main, the changes in physical design of clients’ office space, and the changes in the buildings that house their offices.

The New “Main & Main”
One of the first and most important changes that must be acknowledged is location. Everyone knows the old mantra that the three most important things in real estate are location, location, location. This has not changed. What has changed is the definition of what makes a prime location. Previously we saw clients drawn to locations either very convenient to railroad stations, which brought them into the city from their suburban homes, or a close commute to the CEO’s home. (We all know it happens and makes for some strange corporate decisions, like Sara Lee’s move to Downers Grove back in 2006.) A prime location to today’s growing firms means ready access to public transportation.

As workers have migrated back to living in cities (or never left), we have seen the focus shift to intra-city transportation versus the traditional importance on the suburban commuter hubs. The Wall Street Journal notes, “Of the nation’s 51 largest metropolitan areas, city centers grew faster than suburbs between July 2010 and July 2011. By contrast, from 2000 to 2010 only five metro areas saw their cores grow faster than the surrounding suburbs.” Ready access to food alternatives and urban amenities adds to the cultural enrichment of employees and helps support a willingness to work long hours. We are seeing the C-Suite shift emphasis away from the desires of top management and onto their talent.

In Chicago, for example, we have recently negotiated two leases with very successful entrepreneurial digital design and digital marketing companies. Both of these clients chose nontraditional locations, with one thing in common—immediate access to public transportation, with L train stops literally at their front door. Additionally, 1871, an incredibly successful co-working center in Chicago, is in a 1930s building, the Merchandise Mart, which also has an L stop right on the second floor.

Communication and Its Impact on Space Design
The design of space also continues to change. In a recent interview with a client who had just moved into his new office space, a reporter asked him about the importance of the depth from the window wall to the corridor. My client looked at me quizzically, and my answer was that it was not even a consideration in our building search because his open plan layout did not dictate that dimension as meaningful. For 40 of my 45 years in the commercial real estate industry, planning modules have been a key driver in the design of office space. That’s real estate jargon. In simple words: Is the space built to accommodate 10×10 offices or 10×15, or even 15×20? Today, this is not even a consideration for many of the fastest growing firms because offices are not a priority.

Another interesting movement in the design of office space revolves around the concept of communication. Communication has become a special consideration. With the slow extinction of the private office and to some extent the cubicle, ease of communication with co-workers has become more accessible physically. Some forward thinking companies are even taking it to the next level. Traditionally, groups that work together were always adjacent to each other to facilitate communication. Today, we see a growing trend in the complete opposite direction. Departments are more often than not randomly located throughout a space, and there are not adjacencies for those groups that work closely together.

The reason is simple—management of these firms values communication across the entire company. When an employee must walk across the office to communicate with a co-worker, the trip often will result in conversations with other employees, building team spirit and, in many cases, adding other opinions to the discussion. As noted in the memo that accompanied Yahoo’s announcement banning its employees from working from home, “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings.”

Buildings – What’s Old is New Again
This discussion would not be complete without mentioning the structures that house our client’s space. As I predicted, the most attractive commercial real estate to today’s growing office space users will no longer be the newest, shiniest, tallest, glass/marble/steel high-rise office building. Certainly there will continue to be limited demand for this type of space, but particularly in older cities the repurposing of buildings is a trend that will become even more viable.

Precursors of this trend are the new Twitter headquarters in San Francisco (the former San Francisco Furniture Mart), Google’s New York headquarters (a former Port Authority industrial property), and Zappos’ soon-to-be-completed headquarters in downtown Las Vegas (the old City Hall). With innovative architecture and interior planning, great historic buildings will help invigorate downtown markets in cities throughout the United States.

Recently, I worked closely with Helmut Jahn, the successful architect and my friend, to envision the “Building of the Future.” While I believe buildings of the future will continue to be large, I do not think they will be high-rise tall, but instead will be lower and long, providing the occupants with the ability to relate to their immediate surroundings—letting them continually be in touch with the human element. Inherently, due to the large footprint required, these buildings will surround core areas and will not be in traditional center city locations. Public transportation will remain of utmost importance to these sites.

Energized for the Future
Broadening the definition of location (plus the ability for tenants to locate structures with great character) has resulted in a major shift in the commercial real estate industry. Buildings considered obsolete only five years ago are now considered great potential homes for the new economy tenants. This trend, coupled with the expanding ease of communication, will create fundamental changes in the types of buildings companies of the new economy locate in and where they actually exist. After 40-plus years in the business, it energizes me to see these changes. Now is truly the time for innovation.

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