Scene: 15 years ago, in some non-descript office park off the Highway. Cubicles abound.
CEO (Mary): Jim, our office lease is coming due in a year, we should start to look at our options.
CFO (Jim): Already underway Mary. We will look to get the best deal in a location that is close to your and my homes, and convenient for us to get to and from work, the kid’s schools, and have some decent lunch options.
Mary: Might want to look to a place that has some good food options on site to make it convenient. Maybe a gym?
Jim: Sounds good. Could use the gym myself!
Cut to today:
CEO (Bill): Tamara, our office lease is coming due in 18 months, let’s get our HR team in here and discuss what our needs might be. I know that happy employees are productive ones, and goodness how things have changed since my mother moved us here 15 years back!
CPO (Chief People Officer, Tamara): I will get our employee ambassadors to huddle up, from there we might want to survey the entire crew, but I have a good idea of what they want in our next location. Let’s be honest, when we moved here it was a great spot, but just being centrally located ain’t going to cut it anymore. We need to move to (insert vibrant, walkable neighborhood here. If DFW, perhaps Uptown or Downtown, McKinney, Legacy, CityLine, Las Colinas, Addison) to give our employees the type of environment they deserve.
Bill: I like that approach. Let’s be honest, if we don’t provide our most important resource with the type of environment they demand, we will either lose good people, decrease productivity – or more likely, both!
Scenes like the above are occurring around the country, as the demands on office space have evolved in recent years.
Corporate relocation decisions – and those made by small businesses – are no longer based solely upon lease rates and the desires of the C-Suite to be located close to customers and/or their homes (in areas with nice single family home neighborhoods and good schools).
Today, a number of new factors have come into play. That is not to say that the financial framework of your next lease is not of extreme importance. It is. However, real estate (owned or leased) is likely your #2 or #3 largest line item, at least for knowledge businesses and office users. What is your largest expenditure? Your workforce.
The workforce – especially the group of employees in the greatest demand by creative and technology industries – has become the driving factor in how and where companies decide to move.
Today’s workers demand far more than a gym and a good food court. As a result, those who listen to the wishes of your most valued asset, your employees, recognize that there is a desire to office in more amenitized buildings, and, perhaps even more importantly, within neighborhoods that offer a range of stores, shops, services, and activities within a walkable environment.
A recent report conducted by Chris Leinberger of the George Washington University DFW demonstrated growing demand for walkable urban places (WalkUps), including significant rent premiums for office space that is located within these mixed-use, walkable areas. The reason rents are higher in these location is simple supply and demand: there is more demand by companies to locate in the few areas of town that provide a vibrant, pedestrian friendly, activity-rich environment. You can check out this report, and past ones including the NYC metro area, which come to the same conclusions, at https://creua.business.gwu.edu/research/walkups/.
Disclosure and humble brag: Yours truly, along with my colleague Shea Byers here at J Street Brokerage, played key roles in the research and want to see our region here in North Texas utilize its findings to become even more competitive on the national stage, while serving as a model for other regions around the nation.
The reason for this strong demand in walkable areas is not the whims of the C-suite execs and decision makers. Rather, it’s the workforce. To attract, hire, and retain top employees, companies are moving to the areas in which the workforce wants to work – Walkable, Mixed Use, Mobility-Rich.
In addition, and according to this same research, worker productivity is far greater for companies located within WalkUps than for those who office in areas that are accessible only by the automobile, with few, if any, opportunities to walk to restaurants, coffee houses, cafes, parks, and other amenities.
This has led to a growing presence of factors such as employee attraction and satisfaction in company real estate decisions. You see this with the largest employers such as Amazon (yes, they want the tax breaks – but are also unwilling to build a new HQ in an area which doesn’t enable them to compete for top talent. The result is a focus on these walkable, urban, mixed-use, and mobility rich places), growing local firms, and even startups. There’s a reason most co-working spaces look to locate within these active, walkable places.
As a Tenant Representative who helps companies lease or buy office space, my role has become far more than finding a deal with the right economics. It’s become more complicated (and more fun) than meeting the needs of the top executives and providing for their convenience. Today, office space represents a company’s culture, provides an advantage – or disadvantage – in recruiting talent, and drives worker productivity.
The result is my work is done with the employee in mind as much, if not moreso, than the CEO or CFO. That is not to say a company’s leadership doesn’t have the final say and great influence. However, a good leader recognizes from where they gain success. Today, success is driven by people, specifically employees. Those who ignore the lifestyle choices and demands of their workforce do so at their own peril.
Those who want to locate their office and create a work environment that results in the greatest profitability now realize that it may take a marginal increase in the cost of your lease or building to drive the greatest economic returns through a more talented and productive employee base. Of course, every company is different. Their needs, their culture, the desires of their employees. Not everyone wants to be in a WalkUp. But everyone does need to take stock of what makes their business click, and that means being mindful of the needs of your workforce.
So, who’s the boss? If you are the one signing the lease, it’s still you. Just be wise enough to know that it’s your employees who provide the horsepower for your business to succeed. If they want to be in a cool neighborhood with amenities both in the building and within walking distance, you might want to take that into consideration.
You might also want to work with a commercial broker and tenant rep that understands these new demands for today’s workspace. Since I’m the one writing this article, let me shamelessly plug my home here at J Street, where we combine unparalleled knowledge of the DFW market with a thorough understanding of what will work best for you, your employees, and your company (and for those of you located outside of DFW, make sure your tenant rep does the same!).
Article by Brandon Palanker