Development Magazine Winter 2016/2017

Development - Ownership

The Future of Suburban Office Buildings

Event management technology company Cvent’s 80,000-square-foot headquarters in suburban McLean, Virginia, is located near a Metrorail station and features video monitors that provide traffic and transit information.
Jay Choi

What features will suburban office buildings need to attract tomorrow’s tenants?

SIX MEMBERS OF NAIOP’s National Forums offer their insights into the future of suburban office buildings, including a look at “must-have” features for new and rehabbed projects, tenant-attracting amenities and options for dealing with functionally obsolete buildings. They also explore some of the unique advantages of suburban office buildings that make them more appealing than those downtown, as well as the types of jobs and industries that will continue to be attracted to the suburbs.

What are the “must have” features for new suburban office buildings?

Frank P. Baird: Parking availability is a big issue for companies hiring millennials and densely packing them in, with five to eight parking spaces per 1,000 square feet of office space. The challenge is that almost every office building in suburbia is designed to provide only 3.5 to four parking spaces per 1,000 square feet.

Tony Barranco: Even though we are in a seasonal climate [in Minneapolis], we have to offer outdoor space, perhaps a roof deck or a terrace, to be competitive. Other must haves include alternative work space, fitness facilities and bike rooms. Wellness features are increasingly popular. For example, a simple shift to position stairways front and center in a building encourages people to walk rather than use elevators. This stimulates activity and movement throughout the building.

Deanna R. Polizzo: In the New York City suburbs - including Westchester County, New York, and Fairfield County, Connecticut - parking is an issue. Traditional office buildings generally are required to provide three spaces per 1,000 square feet; however, medical buildings are typically required to provide five spaces per 1,000 square feet. In many suburban areas, parking garages are not looked on favorably by zoning boards and residents, so getting those additional spaces can be a challenge, and extremely costly.

We are also seeing higher utilization rates in suburban buildings. Traditionally, the allocation for parking calculations was 350 square feet per employee. We are currently seeing that shrinking to 100 to 150 square feet per employee, which puts additional pressure on landlords for parking. Although the cost of parking in surface lots varies based on land conditions, structured parking is estimated to cost $20,000 to $25,000 per space.

Another solution suburban landlords are using is valet parking attendants, but that also has a significant impact on NOI (net operating income). Other features that tenants want include Wi-Fi, roof gardens and other outdoor spaces, rotating desk space [in which their employees have no assigned desks or offices, but can work at any available workstation] and more common areas.

Joanna A. Bartnik: Proximity to transit is the No. 1 feature in the Denver market, which has been growing by 100,000 people a year for the past 10 years. Traffic congestion is also growing, and millennials are trading cars for mass transit. Restaurants with healthy food options are another must have here.

What will suburban office building settings look like in the future?

Michael Montante: Office developers will learn from retail trends; site planning, building design and space programming will be driven by the desired user experience. I envision a series of mid-rise (five- to 10-story) buildings in close proximity to one another, connected by a combination of strategically placed hardscaping, landscaping and water elements designed to provide both opportunities for socializing and quiet spaces. Surface parking will be replaced by structured parking. Employees will have access to cafes and restaurants, fitness rooms and yoga studios, health services and other conveniences within a 10-minute walk. Some progressive landlords may even welcome the general public to their office parks with free Wi-Fi and event programming.

C. Michael Johnston: In Silicon Valley, most office buildings are occupied by a single tenant. Most tenants build out their own lobbies, but the landlord helps create the vision for the tenant with an outdoor campus environment and wonderful gathering areas for employees. For example, we are developing a three-building campus for a corporate user in which the buildings will be set around a large courtyard area with outdoor recreation spaces and a large amphitheater where employees can gather. In our temperate California climate, we also create indoor-outdoor meeting spaces.

Bartnik: You may not find true walkability in suburban office settings, as you would in an urban environment, but you will need to provide retail amenities for tenants. The more walkable these are, the better. We see a lot of redevelopment opportunity in suburban office projects where we can create more walkable environments.

the experts

What types of new technologies are being built into new and existing office buildings?

Barranco: Technology is very important. One example is our inclusion of additional video monitors in our buildings for information sharing on everything from building energy usage to transit trip planning.

Bartnik: Because we do not know what technologies will be used in the future, we want to create a flexible infrastructure in new buildings so that we can add whatever new technologies come along. For example, did anyone predict that we would be using our cell phones in our offices and that we would be on the internet all of the time? Consider self-driving cars: Just a few months ago there were reports that they were five to 10 years away. Now Uber is testing self-driving cars in Pittsburgh. Self-driving cars will impact suburban office demand and may even make it less critical for suburban office buildings to be on transit lines. Autonomous cars will also impact the need for parking and parking income at office complexes.

How and where are you redeveloping functionally obsolete suburban office buildings?

Barranco: We have worked on a number of suburban corporate campus renovations. If assets are well positioned, near transit and amenities, there are opportunities. If a building is in reasonable condition with good floor-to-ceiling heights, removing ACT (acoustical ceiling tile) ceilings and clearing out perimeter offices can revitalize the space. I would caution, however, that if an asset is not well positioned and has low deck heights, those buildings will struggle.

Baird: Some office buildings are more viable as residential or other uses. If you have [an outdated building] that is far out, but on Main Street with functioning air conditioning, and you can purchase it cheaply enough, it might work as a mini-storage facility. This change in use could well free up some of the land now being used for parking, enabling you to add another use.

We have a lot of older quasi-warehouse and flex buildings here [in Raleigh, North Carolina] that are being converted to office use after the owners take the ceilings out and stain the floors. The problem with those projects is that often they are in areas without a lot of excess parking. The parking problem is still the toughest one to solve in office development. If you are out in the middle of nowhere, you probably have plenty of parking. The problem is, nobody wants to be out in the middle of nowhere.

Johnston: We probably do as many rehabs as we do new buildings. In Silicon Valley, where rents justify it, developers are investing significant capital into older buildings to give them a material facelift. The facade is replaced and the building is made to look almost new. Some older projects here - pseudo-manufacturing facilities built in the 1970s - are being transformed into “cool” creative office space.

In some markets, developers are taking older office buildings and redoing the lobbies, the restroom cores and the common areas. In Silicon Valley, that is just not enough to get the attention of tenants.

How and where will new suburban office buildings be developed?

Baird: If I could find the right piece of land, I would build a suburban office building in a heartbeat. But the building would need five parking spaces per 1,000 square feet. It would have to be within walking distance of three to five restaurants, be around 150,000 to 200,000 square feet, have high ceilings, be LEED certified and designed for density, include a fitness area and a common area conference facility, and offer a community gathering place in the lobby with coffee, drinks, couches and TV available for tenants.

Barranco: Office buildings are being constructed in areas with amenities, mass transit and entertainment. These pockets of experiential spaces just amplify the opportunity for suburban office development. People today want to live and work in interesting places where things are going on. We are finding that a big opportunity is entertainment districts, particularly around sports venues.

What unique attributes do suburban office buildings offer that cannot be provided in an urban setting?

Johnston: There are two things. The first is the ability to create a campus feel with outdoor amenities, collaboration areas, etc. Another big one is signage and branding for large corporations. These buildings are on busy highways; they offer the kind of visibility and signage opportunities that tenants really value.

office building outdoor seating

Multinational industrial technology firm ABB Inc.’s 95,000-square-foot offices in suburban Wauwatosa, Wisconsin, feature outdoor seating areas.
C+N Photography

Polizzo: If you live in the suburbs, you can be a lot more efficient if you also work in the suburbs. In case of an emergency at home, you are much closer. People make lifestyle choices. Traffic in Connecticut and Westchester County is horrible; infrastructure, be it trains or highways, needs significant improvement and maintenance. Anything that reduces your commute adds to your quality of life. You can run errands, go to the gym, be there for after-school activities or have dinner with friends during the week. That’s just not possible with a one- to three-hour train commute to the city each day.

Bartnik: The parking ratio is better in the suburbs. In downtown Denver, where I am, the parking ratio is one space per 1,000 square feet; in suburban areas, it is 3.5 spaces per 1,000 square feet. Suburban office buildings can also be located closer to executive housing.

What industries or types of jobs will continue to be attracted to suburban settings over downtown ones?

Montante: Back-office and administrative jobs for large companies in health care and FIRE industries will likely remain in the suburbs, where real estate is less expensive, floor plates are larger and more efficient, and parking is plentiful. These typically take the form of low-rise multitenant or build-to-suit buildings with large surface parking lots. These types of lower-paying jobs cannot justify the expensive real estate and lease rates often found in urban locations.

Polizzo: We are starting to see more start-up tech tenants in the suburbs. I don’t believe anyone from the Northeast who is thinking of starting a new business would move to New York City.

Barranco: Medical office space in the [Minneapolis/St. Paul] suburbs is getting a lot of interest because of proximity to customer base and ease of access when compared to a hospital visit. We just had one of our large banks move a big part of their team from downtown to the suburbs. At the same time, we had Wells Fargo build an over 1 million-square-foot building in the east side of downtown Minneapolis. So here are two companies from the same industry making very different decisions.

Johnston: In the Bay Area in 2000, during the dot-com boom, the start-ups were in Silicon Valley. Today, start-ups are choosing to locate in San Francisco, and the blue-chip technology companies are locating in Silicon Valley.

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