Updated Nov. 25, 2019
TAMI vs. FIRE tenants.
What was once a simple debate for commercial real estate lessors has drastically shifted.
For the longest time, FIRE tenants — those in the financial, insurance, real estate, and similar industries such as law firms — were known as the “old reliable” tenants that property owners and managers sought to lease to. The reason was simple: they were steadier and less volatile as a whole than those in the TAMI (technology, advertising, media, and information) sector.
All of that has changed in the last decade as we truly enter the Information Age. It’s no secret that technology companies are helping to fuel our current, long-running economic expansion. While there certainly is and will always be volatility in individual startups, we don’t see venture capitalists backing away. In fact, VCs have deployed $25B+ in each of last six quarters to help these companies innovate new industries and transform existing ones. With that kind of investor support TAMI tenants are not only here to stay, they’ll continue to grab expand their consumption of premium commercial real estate (CRE).
Michael Cohen, Tri-State regional president with real estate services company Colliers International, agreed.
“As long as the VC community will continue to fund (start-ups) and the public markets continue to support double-digit multiples, the TAMI sector will thrive,” he told National Real Estate Investor (NREI).
Research by JLL suggests the same. Percentages of two traditional FIRE tenants — finance and law tenants — leasing office space have declined 8.9% in 2019, per JLL, while the percentage of technology companies leasing commercial real estate has increased by 7.4%.
TAMI vs. FIRE: Where Should CRE Focus?
That’s not to say that FIRE tenants are going away. Instead, they’re leaning into the trend of breaking the traditional office mold to attract and retain an increasingly younger workforce that not only cares about a “modernized” and tech-forward work space, but expects it.
It’s being reflected in the way businesses are leasing space. Per NREI, there was an increase in Class-A renting, with “60% of office leasing activity focused on four- and five-star office buildings, even though those categories made up only 30% of total inventory.”
Of course, Class-A buildings don’t have to be tech-centric. A Class-A building can be aesthetic, infrastructurally sound, have a great location and terrific management and still qualify. But if the definition is meant to distinguish the best of the best, in 2019 and beyond technology has to be a critical focus.
Consider this simple and important but oft-overlooked detail: connectivity.
Gone are the days where being unable to connect to a data or cellular network are someone else’s problem. If property managers can’t provide top-notch connectivity, it more than likely will severely cost them.
According to a WiredScore study, 87% of leasing decision makers said connectivity is an important factor in selecting a work environment, which ranked ahead of price in importance.
And, per Airwavz, “many employees who experience poor connectivity at work are also frustrated at the building and unproductive. To preserve … their own bottom lines, corporate tenants may choose not to lease or renew in buildings that fail to address poor wireless capability.”
The idea that simple, reliable connectivity is more important than pricing checks out according to 2019 data from VoitWorks, which explains that although “landlords continue driving up rents wherever possible … tenant retention remains steady due to onsite enhancement of amenities …”
It’s important to remember who the overwhelming majority of these tenants are quickly becoming: millennials. And among the amenities that millennials care about the most, technology never ceases to be important.
If we use simple access to internet, data, and cellular networks as a baseline for the importance of tech-enabled commercial real estate, it’s easy to correlate the necessity to attract TAMI tenants and understand that they’re here to stay.
Still debating TAMI vs. FIRE? Regardless of your choice, take some time to learn how HqO can help your property keep up with tenant experience demands by contacting us today to schedule a demo.
Original blog written by Katie Sullivan, published Feb. 3, 2018:
The recent rise in the demand for premium office amenities, workplace experiences, and cutting-edge smart building design is often attributed to commercial real estate (CRE) requirements from TAMI tenants — businesses in the technology, advertising, media, and information industries. TAMI tenants are getting a lot of attention from landlords and brokers these days because in the past 5-10 years, they’ve given FIRE tenants — businesses in the financial, insurance, and real estate industries — a run for their money with regards to leasing demand.
For instance, in examining leasing demand in Manhattan for the second half of 2017, Commercial Observer reported that of the 372 tenants looking for space at the time, TAMI and FIRE dominated the demand landscape. Combined, TAMI and FIRE made up 49.2% of the tenants looking for space and 45% of the square feet required.
TAMI vs. FIRE: What Direction Is CRE Heading?
Because of this, CRE professionals see the writing on the wall – they can no longer ignore the STEM and creative industries as they begin to encroach on leasing demand from the old reliable FIRE tenants with their long term leases and strong credit.
But in that same Commercial Observer article, it was reported that the average size of financial tenant requirements was 78,060 square feet, due to 13 tenants searching for 100,000-plus square feet. In comparison, only five TAMI tenants were looking for greater than 100,000-square-foot spaces, equalling only a 43,659-square-foot average. While this is only a sample of a small time period in one city, it’s indicative of a larger trend, and proof that CRE is not, and should not, disregard FIRE tenant demands any time soon (or ever).
TAMI vs. FIRE: What’s the Difference?
So, how different are the workplace expectations from these two sets of industries? Is the demand for amenities really just a tech thing?
Now, TAMI businesses didn’t whip up these expectations out of nowhere. The concept of the future of work is really a perfect storm of many trends coming together and playing off one another: tech sector growth (particularly in Silicon Valley), mobile phone adoption, an increase in millennials and digital natives in the workforce, the gig economy and coworking, increased value placed on user experiences over physical assets, the WeWork effect, and of course, the war for talent in all sectors but particularly in the TAMI industries.
As a result, leading TAMI companies began leveraging their office environment as a leg up on other businesses battling for the best engineers, product managers, designers, marketers, and so on. Additionally, TAMI businesses quickly realized the impact that these state-of-the-art offices had on their business as it inspired and energized professionals and further blurred the lines between life and work.
But, as we mentioned in the last post in our Amenity War series, these expectations and demands are spreading far and wide as other industries take note of the effect it has on employee happiness, productivity, and loyalty – particularly with the millennial generation who is on track to dominate 75% of the workforce by 2025.
Wouldn’t the up-and-coming generation of financial, insurance, real estate, and law professionals want these same workplace benefits and experiences? It seems to be changing, and fast. This, according to a recent report from Gensler Research, is indicative of this change:
“Current law firm design is based on a model that has been around for almost 100 years. The allocation of space comes from a mentality that legal work is individual and that the private office is a symbol of status and success. Yet legal work and legal culture are changing rapidly. New economic realities, new technologies and ways of working, global talent, and client pressures are colliding with a new suite of expectations and work styles from young attorneys. Law firms are now part of a value-based economy and need to reinvent how they operate and how they use space.”
A good example of this shift is right in HqO’s backyard in the Seaport neighborhood of Boston. Years ago it was designated as the Innovation District, a place where fledgling startups flocked to cheap rents in undeveloped loft space and old warehouses. This campaign, a huge initiative for Mayor Thomas Menino and his administration, invested in the idea of economic growth from entrepreneurship and began to design the Innovation District with that user in mind. As developers began executing on that vision — and given its otherwise untouched proximity and views of beautiful Boston Harbor — rents began to rise, pushing out many of the startups and inviting in the PwCs, Goodwin Procters, and State Streets of the world.
The bottom line is that the future of work for ALL industries is this tech-enabled, amenity-driven workplace experience. For FIRE and TAMI industries, every professional will be a connected tenant – and these tenants want concierge-style services, access to health and wellness activities, easier commutes, better proximity to city centers, and user experiences with tech-enabled perks.
The landlords that design all workplace experiences with this in mind, regardless of industry of tenant occupancy, will see long-term success as CRE continues to transform from a business of renting space, to a tenant-experience business.