As Users Flock to Quality Space, Houston Office Owners Focus on “Ecosystems”

by Taylor Williams

If industry professionals, particularly developers and landlords, don’t make educated attempts to understand the mindsets of their tenants, they have little hope of advancing the dialogue and ultimately furthering their understanding of tenant decision-making.

Take the Houston office market, for example, and its inventory of approximately 330 million square feet, according to CoStar Group. This market has experienced rising vacancy and declining rents throughout the four-year oil slump, but continues to see strong tenant demand in the Class A space.

To this end, CoStar reports that there are still nearly 3 million square feet of new office projects under construction throughout metro Houston, the vast majority of which is Class A product. The high proportion of Class A deliveries is partially attributable to rising land and construction costs that mandate heftier rent projections.

Eric Siegrist, Parkway

But still, there’s no question that Houston’s growth in certain employment sectors — healthcare, technology, financial services — ensures that many of the jobs being created in the city need to be paired with high-quality office space.

Understanding and explaining the actions of the thousands of companies that commit to millions of square feet of office space is a case-by-case endeavor. But as markets of this size evolve, noticeable trends begin to appear.

Over the last 10 years, the most visible new trend to emerge in the Houston office market has been the flight  among tenants to high-quality, Class A space. Considering this trend from the perspective of office users suggests that these companies are looking to make changes, not just in their real estate strategies, but also in their approaches to talent recruitment and retention.

The New Definition

In recent years, the definition and perception of “quality” has rapidly morphed. Quality, as we understand it in the context of office space, is no longer squarely focused on the newness or aesthetics of the structure or the grade of the interior finishes, but rather on the quality of environment as defined by the offerings and atmosphere.

In essence, office properties that enhance employee productivity — and ultimately, retention — by serving as more than just places to work are the ones fielding the strongest levels of demand from tenants. This is why the amenitization of office properties in terms of features that promote the well-being of employees are increasingly crucial in today’s market, in both Houston and beyond.

The staple amenities like fitness centers and cafeterias have become token inclusions and hallmarks of older office product. By contrast, the current ideal office property might take a page from the playbooks of  Silicon Valley campuses, which means featuring amenities such as onsite daycare, pet sitting, dry cleaning, auto care, fitness classes, basketball courts, chef-driven restaurants, convenience retailers and robotic ice cream machines.

Cultivating An Ecosystem

The “whole person” concept is integral to designing and curating the workplace experience, as is the value of creating touchpoints from the point of arrival to departure. In that sense, the word “ecosystem,” which to some conjures memories of high school biology class, is the most relevant word to describe the endgame that office owners strive for in today’s market.

The flight to an ecosystem can be thought of as an intensified flight to quality. Buyers that are much more selective about their spaces than they were in the past are powering this movement, and are making their site selection criteria known not only to their tenants, but also to the media. And what we’re hearing is that occupancy costs have clearly been de-prioritized in favor of increasing productivity and lowering costs related to talent recruitment and retention.

In other words, it’s no longer about being able to offer “nice” space in a “nice” building. What’s “in” right now is the combination of dynamic workspace that is oriented toward the well-being and lifestyles of employees, including convenience and non-work aspects of employees’ lives.

In many ways, office is following the hotel and multifamily industries in this regard. These asset classes are under constant pressure to adapt and reinvest, as well as to capture and hold on to tenants.

As lifestyle demands and trends change, owners of hotel and multifamily properties (who are the most attuned to the service-based amenities that guests and renters want) will be the ones that rise above the competition.

It’s clear that Houston’s office landlords can no longer afford to be far behind in identifying and acting on the needs of a keenly more holistic occupant. This holds especially true when considering tenants’ willingness to pay for these amenities — and  how the selection process is impacted by social media and online resources constantly heralding the next best thing.

So here’s to encouraging our industry to be “students of the game;” to understanding what makes our consumers tick and what enriches their lives; to sharing the knowledge and vigorously testing the theories — and then acting decisively to align the aspirations of the consumer with the potential of our investment properties.

 By Eric Siegrist, director of leasing, Texas, Parkway. This article first appeared in the July issue of Texas Real Estate Business magazine. 

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