If you weren't able to attend Bisnow's "Office of the Future" event this week, no worries, our team attended and took notes. The basic premise of the event was simple – what trends are driving tenant lease demand in and around Boston specifically, and what broader industry trends are impacting tenant expectations for office design and overall workplace environment.
For us, the "Office of the Future" means one thing: an improved tenant experience. Owners and operators are no longer in the business of simply selling four walls and a ceiling – they have to differentiate on experience or they will get left behind. My first reaction (and constructive criticism) from this event was that the influence and impact that technology will play in CRE's transformation to a user experience business was not represented nearly enough in the panels. Call me bias but the foundation that proptech can play in building a strong tenant experience and subsequently a positive brand based on innovation, hospitality, and intelligence, makes it a no-brainer when considering what goes into the office of the future.
That being said, I learned a lot at this event and thought I'd share some of the biggest takeaways here from the experts on stage.
Boston Market Fundamentals - All the Fun Facts You Want to Know
This panel included:
- Mike Winter, SVP, Asset Management at LaSalle Investment Management
- Charley Leatherbee, EVP and Regional Manager at Skanska USA Commercial Development
- John Sullivan, Partner and Director of Architecture at SGA
- and moderator Ronald Perry, Principal at Avison Young
- Boston has 68M total sq ft of office space with 8 distinct submarkets.
- Downtown is half of the total sq ft, the second largest is Back Bay, but the Seaport is quickly becoming second largest.
- The total vacancy in Boston is 8% but surprisingly, North Station has the lowest vacancy at 4%
- Net absorption is the biggest thing developers and owners think about: currently at 500,000 to 1M sq ft in the city.
- Average office rent for Class B space is mid $.40's - .50's per sq ft and class A is mid $.50s to mid .80s.
- Many cranes in the sky are residential: currently only 13M sq ft of office projects are in the pipeline and only 12% of the overall pipeline is actually happening.
- Build it and they will come – Charley Leatherbee on Boston being a show-me town: "It's not the easiest way to go about it but Boston is a show-me town and at Skanksa we've noticed that even when there are a lot of great new developments in the pipeline, until the companies see it going up, they don't commit. Projects that deliver in 24 months will be well poised to capture great companies migrating into the city or capturing growing companies. 24 months and beyond, thats a different discussion. We were nervous this time last year with 121 Seaport - lots of action and velocity but no tenants. Then all of a sudden, PTC and Alexion signed on and we're now 100 percent leased prior to opening the doors."
- Millennials are growing up – John Sullivan on building for the ideal tenant: "Aging millennials have an impact on how we design. Within tenant space, the ownership of space is less important. The variety of spaces is most important. Tenants are choosing space based on type of work and the team interactions they're interested in nurturing. For millennials, community is very important and I spend a lot of time working with owners to translate community beyond offices and into amenity space and more. Millennials want to work on your roof deck or in your urban plaza with lots of retail and hospitality. They want flexibility and this is forcing buildings to present themselves very differently now."
- Brace for impact – Charley Leatherbee on WeWork through the downturn: "What are my thoughts on WeWork? They are a disruptor for sure but it will be interesting to see what happens when the market softens. WeWork will be hit first. We’ve considered leasing to them in Boston and elsewhere, but with all due respect I'm a little apprehensive to sign a deal. Other landlords are now saying "why cant I offer flexible workspace" and this will present obvious competition."
- Rapid Fire - Would Amazon HQ2 be good or bad for Boston?
- Mike Winter: From a labor perspective, Boston is number one and it would be a positive thing. But, my bet is that HQ2 will go to D.C. - close to the Post and government in Bezos back pocket.
- Charley Leatherbee: If HQ2 does come here it's a good thing generally speaking, but it applies a lot of pressure on our infrastructure.
- John Sullivan: HQ2 would be a great thing and I'd love to design 8M sq ft of office space. But the reality is that it would put a huge strain on our infrastructure. Upside is that it will force us to address transportation and housing challenges that already exist.
Multifunctional Space Is A No Brainer
On the second panel:
- Reed Gilbert, Head of Real Estate & Workplace Services at Wayfair
- Elizabeth von Goeler, Senior Workplace Strategist/Interior Designer at Sasaki
- Sal Lupoli, CEO & Founder of Lupoli Companies
- and moderator Lisa Nickerson, Founder & Principal of Nickerson PR & Nickerson RE
This panel was focused on what tenants want out of their office space, and a trend we continued to hear specifically by these experts is the importance of speed and flexibility. Businesses need things faster than ever before and flexibility in lease terms and the office space itself is so important to win over the tenant.
- Elizabeth von Goeler: "Every business has at least one business challenge and as placemakers we must be the ones to work with them to solve those problems through office design and lease terms.
Often, amenity space is generally considered a loss to the building, but by repositioning areas of the building and making space flexible and multi-purpose, landlords can create spaces that thrive at all times of the day for many types of tenant.
- Elizabeth von Goeler: "At 125 Summer Street, we repositioned the lobby to make it a multifunctional space. It's a lounge, a work space, and feels more like a hotel lobby than a building entrance. The furnishings can be removed, TV screens can be programmed depending on the event and this was really important to Oxford who loves to bring tenants together for ice cream socials, to watch the World Cup, etc. In another example, Akamai is a huge company and they occupy 18 floors in a building - but community and social interaction is still incredibly important so we created the Akamile - a mile of collaborative space that travels through all the floors of the building. It all comes back to solving a problem for the tenant."
- Reed Gilbert: "Furniture is another important aspect of the tenant experience. And, using space and designing space differently and more intelligently based on how the business will actually use it. For instance, if people meet in smaller groups, you probably don't always need a full conference room.
- Biggest takeaway: Having any one space that is only used in one way = eventual dead space
Coworking or Not - Experience is Everything
On this panel:
- Michael Burke, VP, Real Estate and Development at Convene
- Bill Jacobson, Co-Founder, CEO at Workbar
- and moderator Robert Brown, Principal/Managing Director at Perkins+Will
- Bill Jacobson on what tenants want: "Theres three things office tenants are looking for: speed, cost down, experience. They want a lot more out of the typical services. Traditionally office space offers infrastructure, security, maintenance. It seems so basic now. Now, tenants want services, brand, community development, full office staff, furniture, design, amenities, food, etc. The space component is becoming standardized."
- Michael Burke on headlines vs. trendlines: "Coworking is becoming standardized. Ignore the headlines and look at the trend lines - WeWork, WeWork, WeWork is what we hear, but what to seriously consider as the underlying trend is that major institutional companies are looking at speed and flexibility for their office space. Can real estate solve more than just a place to put your people?"
- Bill Jacobson on coworking handling the time suck for entrepreneurs: "The change in the economics is the really interesting part - tenants are asking, how do I attract talent, but how do I also move into a space where I can cut down on the things I have to do there. The time expenses. If a tenant doesn't want to spend time emptying the dishwasher, there are real estate solutions that are solving the time and complexity items for businesses so that they can move in faster and focus on their business."
- Bill Jacobson on coworking through the downturn: "A downturn will make coworking go up. Businesses will need flexibility. Not to mention that our rents will go down too."
- Michael Burke on the office experience rating: "In the CRE world, brands are being created based on different levels of experience. Office environments will be designated by their service experience. Some tenants will want Best Western, and some will want Four Seasons."
All in all, it was a great event with valuable soundbites from experts that we're happy to share with the CRE and proptech community. If you want more content like this, including hot takes from our own CEO, sign up for our newsletter today where we provide weekly teardowns on everything happening in the space that you just can't miss.