In the largest office markets of the Northeast, landlords are competing to attract valuable corporate tenants by providing the highest quality work-life balance for the region’s talented workforce.
The Boston, New York and Philadelphia office markets are among the most competitive in the country. While factors like salary, commute time and personal fulfilment remain important in deciding where to work, employees are now placing more emphasis on amenities and work-life balance in their final decisions. Consequently, employers are making a point to meet those demands by investing in properties with convenient access to those amenities, in particular fitness, dining and transit.
According to Colliers International, Class A office asking rents in Boston rose 9.9 percent in the third quarter of 2019, commanding $100 per square foot in the city’s hottest markets. Lauren Vecchione, senior vice president in the Boston office of Colliers, says that landlords have to provide competitive amenities if they want to command and achieve the asking rents in submarkets with the strongest demand, including the Seaport, Financial District, Back Bay and Cambridge’s Kendall Square.
“Larger and smaller tenants alike are focused on finding efficient spaces that allow them to build out a creative office experience for their employees,” says Vecchione. “Access to public transportation is a major focus, as well as ground-level food service, conference space and fitness centers. Some landlords are going the extra mile by adding tenant-only game rooms and golf simulators as well as outdoor space.”
Foundation Medicine signed a lease to occupy 580,000 square feet of office and lab space at 400 Summer Street, part of WS Development’s upcoming Seaport Square mixed-use development. Slated for completion by 2023, the 7.7 million-square-foot development will include office, residential and retail components, as well as direct access to South Station and the Silver Line of the Massachusetts Bay Transportation Authority (MBTA).
“Some tenants are willing to pay more to be in their targeted neighborhood or building to be closer to the talent they attract,” says Vecchione. “If tenants can keep their footprint the same, or even take less square footage to stabilize costs to be in their targeted neighborhood, they will.”
Co-Tenant Amenities
Providing all the amenities that employees want can sometimes be difficult and expensive for landlords, especially for small spaces in high-density areas like Manhattan. Offices that share spaces with entertainment and retail tenants within mixed-use developments can often count that close proximity as a workplace amenity.
New York City’s economy generated 93,300 new office job through the first half of 2019, representing a 2.1 percent increase in total employment year over year, according to the most recent data available from Marcus & Millichap. During the same period, the average asking rent in Manhattan rose 1.1 percent to $64.61 per square foot, propelled by a 2.4 percent increase in Class A rent to $70.51 per square foot.
“In Manhattan, we see that the best tenants are willing to pay substantially more for Class A trophy properties in great locations,” says Eric Anton, associate broker at Marcus & Millichap’s New York City office. “Hudson Yards, the World Trade Center and West Chelsea are extremely attractive to large media and tech tenants in the market.”
Approximately 5.2 million square feet of office space came on line by the end of the second quarter, consisting primarily of 3 World Trade Center in Downtown Manhattan and 55 Hudson Yards in Midtown. More than 8.3 million square feet is slated for delivery by the end of the year, including One Manhattan West as well as 30 and 55 Hudson Yards. Social media giant Facebook recently signed a lease for 1.5 million square feet across 50, 55 and 30 Hudson Yards.
Brookfield Properties is developing Manhattan West near the Hudson Yards redevelopment on the West side of Midtown Manhattan. Manhattan West will offer 6 million square feet of office space and 240,000 square feet of retail space, as well as 844 residential units and a 164-room hotel, when construction is complete in 2021.
The National Hockey League plans to move its headquarters from the Manhattan Theater District to 160,000 square feet of office space and 15,000 square feet of retail space at One Manhattan West by the end of 2019.
Law firm Cravath, Swaine & Moore LLP signed a 481,000-square-foot lease for its new headquarters at Two Manhattan West, which is slated for delivery in 2024. The development also features a seasonal skating rink with NHL branding, a two-acre public plaza and access to numerous dining and retail tenants — not to mention walkable proximity to Hudson Yards and the Hudson Yards Subway Station. Fitness technology company Peloton has opened a 35,000-square-foot flagship facility at the site called Peloton Studios, which hosts and broadcasts a variety of fitness classes.
“Tenants are increasingly interested in curated services and experiences within their office buildings,” says Anton. “Outdoor space remains one of the most desirable amenities for all types of tenants, and we see developers bending over backwards to create interesting spaces. Very large tenants can negotiate all types of private space amenities for their employees, including gyms and pools.”
Flight to Suburbs
Suburban markets outside of major metros can offer more space for construction of onsite amenities and appeal to a range of talent living both within and outside the city. Landlords of some office complexes are boosting the value of their properties by adding more amenities, including landscaping and outdoor trails, onsite dining options and even entire buildings full of entertainment and leisure amenities.
Warren Corporate Center in Warren, New Jersey, was originally developed in 1996 as the headquarters of telecommunications company Lucent Technologies. Vision Real Estate Partners acquired the 820,000-square-foot center in 2016 for $136 million and shortly thereafter began construction of Warren Hill, a 20,000-square-foot lifestyle center that serves as a central amenity hub for employees.
“Rather than compel the professionals that work at Warren Corporate Center to leave every day to grab their lunch or get in a workout, we instead brought the amenities to them,” says Sam Morreale, founder and partner of Vision Real Estate Partners. “On-site lifestyle centers like this make it easier for professionals to step away from their desks without disrupting their productivity and focus.”
Morreale says that Warren Hill was modeled after the concept of a student center on college campuses, and it houses everything from a full-size basketball court and fitness center to multi-function conference areas, a café with a coffee bar and an outdoor amphitheater. In July, Everest Reinsurance Co. signed an approximately 315,000-square-foot office lease for its new corporate headquarters at the center.
“Like most companies today, Everest’s priority is being able to recruit top, next-generation talent,” says Morreale. “What we’re seeing is that the modern employee wants to be able to access different environments throughout the day for different types of work, and they want seamless access to amenities that make it easy for them to embrace a better work-life balance. This keeps them invigorated, engaged and, frankly, more productive.”
Athletic apparel retailer Puma has signed a 150,000-square-foot office lease to establish its new North American headquarters at The Offices at Assembly Row in Somerville, Massachusetts. Federal Realty Investment Trust is developing Assembly Row, a mixed-use development north of Boston that will feature a total of 2 million square feet of office space, 635,000 square feet of retail and 1,800 residences. Phase I and II are complete. Phase III will include a built-to-suit office space for Puma, which will consolidate the company’s two existing offices in Boston and Westford in 2021.
“To attract and retain the best talent, we need to bring all of our employees together in one dynamic headquarters, and our new space at 455 Grand Union Boulevard will allow us to do just that,” says Bob Philion, president of Puma North America.
Puma will be an anchor tenant of The Offices at Assembly Row when the company establishes its new North American headquarters within the development in 2021.
The Offices at Assembly Row offers tenants access to a fitness center, on-location daycare, bike storage and an approximately 20,000-square-foot roof deck with a basketball court. The complex is located steps away from the MBTA Orange Line stop at Assembly Square and provides employees easy access to Assembly Row’s dining, shopping and health and wellness attractions. Puma has also operated a retail location at Assembly Row since 2014, so Philion says the location is a natural fit to expand the company’s presence.
“Overall, Somerville is a vibrant location full of creative energy, which is easy to get to and has a spirit that aligns well with our brand,” he says. “We get all the benefits of being in such close proximity to downtown Boston and many of our region’s most diverse communities located along the Orange Line, while mitigating commute times for our suburban employees.”
Extend the Neighborhood
If a building can’t offer all of the amenities the talent desires, convenient access to public transit can be a game changer. Trains benefit a tenant by reaching talent that otherwise would not commute by car, and grants that talent quick access to attractions in other neighborhoods.
“Think of a train as an extension of the neighborhood,” says James Kelley, vice president at CBRE’s Philadelphia office. “It makes the location more accessible to people from far away, and it grants quick access to other parts of town that might have those attractions their workplace does not provide. Sometimes transit can be more important than the building or the
complex itself.”
The northern suburbs of Philadelphia are some of the tightest office submarkets in the metro area, and Kelley says it’s no coincidence that these areas have the closest proximity to transit.
Keystone Property Group is developing SORA West, a 400,000-square-foot office complex in Conshohocken, which will house pharmaceutical wholesaler Amerisource Bergen’s new headquarters when construction is complete in 2020. Marketed as a “transit-oriented” development, the property will also include a 165-room hotel with restaurant space, a gastropub redeveloped from the 139-year-old Conshohocken Firehouse and direct access to the Conshohocken Southeastern Pennsylvania Transportation Authority train station.
“A number of tenants have been willing to pay to be in more favorable buildings and locations,” says Kelley. “If you look to the more developed suburbs, you have the rail and you have access to basically any type of restaurant or amenity. A lot of tenants have been willing to pay for that type of access.”
— By Alex Patton. This article first appeared in the November-December issue of Northeast Real Estate Business magazine.