Everyday Office Amenities Take Center Stage Amid COVID
Sure, your office has pig petting and yoga. But how’s the internet?
For Jonathan Kaufman Iger, a lot of it is about balance.
Tenants can no longer be taken for granted. The technological revolution, which allows workers to carry the computing power of the 1960s space program in their pocket or their shoulder bag, and the pandemic, which has sent workers out of the office and into the home to work in droves, have seen to that. So it takes two essential elements to keep office buildings filled: “Sexy” lures like outdoor terraces, fitness centers and gourmet lunches, and “unsexy” basic blocking-and-tackling elements like a facilities staff that can respond to a tenant’s every need.
“For us it’s a balance between what is the shiny object that you hope will help in obtaining new tenants and how you are actually providing value,” said Iger, a great-grandson of William Kaufman, patriarch of one of New York’s signature real estate families that is still a major factor in the city’s property market, like the Rudins, the Dursts, the Zeckendorfs and the Fishers. “How are these things truly being used? How are they truly providing value to the tenants?”
“We are a big believer in amenitizing our properties,” he said.
The Kaufmans have divided their attention with two companies, the William Kaufman Organization, which oversees the family’s property empire, and Sage Realty, which is the company’s management arm. Iger is the CEO of Sage.
At one of the buildings that the William Kaufman Organization controls and Sage Realty manages, 437 Madison Avenue, Iger said Sage executives opened an outdoor skydeck, one of the chief ways landlords have moved to make their office buildings more enticing to workers weaned from the habit of clocking in every day. But Sage also provides a concierge to address more mundane issues, like making sure everyone has internet access, and ensuring the toilets work and indoor air is properly and comfortably heated or cooled.
Many real estate people say offices need a concierge ready to tackle any problem that might come up as much as hotels do. Concierges are no recent innovation for the William Kaufman Organization, Iger said. The firm has had a concierge platform since the 1970s.
“You might get [tenants] in because you have a golf simulator or a conferencing space, or yoga on the setback,” Iger said. “But if they are not going to partake in those things, when it comes up for renewal they are going to recognize that. If the tenant feels they are effectively paying for those things, they are either going to want a discounted rent, or they are going to move to another building.”
It’s a dilemma for all office landlords. How much attention do you put into juicy amenities that literally change the meaning of work: instead of just a place where you subsume your soul to your boss to raise the profile and profitability of the company, it’s become a place to lift your soul with yoga, tantalizing foods, maybe an alcoholic beverage or a mixed drink, a place to park your bicycle, a place to enjoy the sunshine and fresh air. Tishman Speyer even offered Rockefeller Center workers a chance to pet a baby pig. Anything to get you off your couch.
At the same time, there’s the simpler, more traditional services: monitoring the air, the temperature, the bathrooms, and, since the `90s, the internet performance. If any of those things go down, your occupants will want to be anywhere but your building.
And, if employees find they can be just as productive and plugged in some place other than your office – like at home – and resolve to come into the office fewer days a week, or almost never, will their companies, when it’s time to renew, be willing to pay more for the same amount of space? That’s a pressing question for office landlords that’s driving much of the decision-making on the mundane aspects of a workplace, never mind the much more ballyhooed.
This focus on making the office more attractive, inside and out, costs money, of course, said Dylan Burzinski, a senior associate for research at Green Street Advisors, a Newport Beach, Calif., firm that analyzes commercial real estate.
“Pre-COVID, there was a flight to quality to newer, modernized, highly amenitized buildings,” he said. “And, coming out of COVID, we are going to see acceleration in that. If employees clearly like working from home, and you’re an employer and you want to bring employees back to the office, you are going to want to bring them back to an office that is highly amenitized – a place where employees want to be.’’
With the rapid and worldwide spread of the omicron variant of COVID, the highly anticipated mass return to office keeps getting put off, with several big-name companies pushing return dates back and working from home remaining popular, Green Street said in a Dec. 15, 2021, research note. App-hail service Lyft, in what Green Street described as a “bold move,” pushed its likely return date to 2023, taking this year off the table.
Google vacated a return-to-office requirement of Jan. 10 and said it would reevaluate its return policy in the early months of 2022. It said its offices were less than 40 percent occupied in recent weeks. The web search giant controls millions of square feet of offices in Manhattan’s Chelsea and Hudson Square neighborhoods, and has been a leader in making its offices more comfortable and employee-friendly. Ford, the automaker, is pushing back its return to the office to March.
And on and on the list goes as companies try to avoid not only fostering an environment that might sicken workers but the bad press that can come along with that. Financial services firm Jefferies, for example, said late last year that it suffered more than 40 new COVID cases after bringing workers back to the office, and so extended work-from-home privileges into 2022.
In a Dec. 2 research paper, Green Street said that hybrid work, meaning a worker splitting their time between a corporate office and another location either closer to or in the home, “appears to be a base case, not a fad,” and that it may reduce aggregate office demand by around 15 percent in coming years.
Joe Stokes, global lead of CBRE Host, the real estate services giant’s mobile app, which it offers to landlords who aren’t big enough to afford their own, said landlord sensitivity to employee needs down to the individual level will be “key” going forward.
“We all want a human experience,” he said. “In a world where we feel isolated, the human element and the experiential component is going to be key. We’ve certainly seen an increase in demand for guest relations, for concierges, for community management, and I think that will increase in 2022.”
Marc Holliday, CEO of SL Green Realty Corp., said last year on a conference call that he was confident that “spotty Wi-Fi,” among other issues, would drive workers back to the office when the chance presents itself. A spokeswoman for the real estate investment trust, the largest owner of office buildings in New York, said the company does not employ a person or a team to address the odd needs of a tenant.
“So far there has been no change in space requirements,” said Alexander Goldfarb, a real estate investment trust analyst with investment and securities firm Piper Sandler. “But, at the same time, similar to retail, you’ve seen a flight to quality. Leasing for buildings built after 2000, and buildings that have been recently renovated, is very different than for older buildings.
“So, if you are a landlord and you haven’t invested in your office building, you’re losing,” Goldfarb said. “The winners right now are either brand-new construction, or people who have spent a lot of money updating their facilities.”
This feature appeared originally in Commercial Observer’s Tenant Talk newsletter. Consider signing up for this and other newsletters here.