Developers Are Pumping More Money Into Growing Open Spaces At Their Projects
Atlantic Station is a sprawling mini-city in the heart of Midtown Atlanta, home to office towers, condominiums, hotels, townhouses and strings of retail shops spread across its own street grid.
While its owner, Hines, continues to add to the commercial space there, it is planning to spend $20M to upgrade a space that doesn't add a single dollar in direct rent to its balance sheet.
Hines is doubling the size of its Central Park at Atlantic Station, including tearing down two existing restaurant buildings and rebuilding two smaller restaurant facilities, adding a larger patch of turf with a massive LED screen looming overhead. The developer also is erasing two of its roads and redesigning them for pedestrians only.
Hines Director of Leasing Nick Garzia said Hines is responding to the changing nature of mixed-use and commercial projects in the market as places the community wants to gather, not just shop and eat.
“It's like [a] renovation [of] a lobby in an office building. Does it pay you a direct impact? No, it doesn't. But there's a point where you have to keep up with the Joneses,” Garzia said. “We want to create [spaces] for shoppers that really encourage people to come and spend time other than for the singular purpose of shopping.”
Hines is not the only developer pumping big money into creating public spaces in private, mixed-use developments. Many developers are forgoing spaces that could easily house more revenue-generating real estate in exchange for people to mill about during the afternoon, host movie nights or music concerts or even yoga classes.
North American Properties has made this concept an art form at its various projects. In Alpharetta, a few miles north of Atlanta, North American developed an upscale mixed-use center called Avalon that holds a Whole Foods, a movie theater, restaurants, townhouses, apartments and two office buildings that host several Fortune 500 tenants, including Microsoft.
Kelley said its most valuable piece of the development is the concierge building. It sits on the half-acre village green where the developer hosts more than 200 public events a year, including weekly yoga classes and the annual holiday tree lighting, which draws some 2,000 visitors. All those events are generated out of that concierge building, which North American doesn't collect rent on.
“If we convert that building to retail, it would be the highest rents per square foot [at Avalon],” Kelley said.
In most of their projects, North American is investing millions of dollars into public gathering spaces. It is tearing down an enclosed mall and food court to create an open-air plaza at Colony Square in Midtown Atlanta and building a village green in the heart of another suburban mixed-use project called Revel in Gwinnett County, next door to the popular Infinite Energy Center.
“[Public spaces] don't earn direct revenue, but indirectly, they drive a lot of value,” Kelley said.
These public gathering spaces have other tangible financial benefits. According to a recent Urban Land Institute study, properties adjacent to parks and open spaces can see as much as a 40% increase in value. Nearly 80% of those real estate investors and landlords surveyed by ULI in the same report saw open spaces as a “crucial catalyst for economic development."
Hines already hosts 300 events a year at Atlantic Station's Central Park. The expansion will allow the developer to hold larger and longer events, which have a halo effect on the real estate directly bordering the park in the form of higher rents, Garzia said.
“We're driving rents higher than we're getting in the rest of the center. And this is already happening,” he said.
This trend is not limited to urban environments. Many developers are investing big dollars into public gathering spaces even in suburban projects.
Some 35 miles north of Atlanta, in suburban Forsyth County, Atlanta-based RocaPoint Partners is taking a wooded, 135-acre tract and transforming it into a dense, mixed-use center with a movie house, restaurants, retailers and office space.
Instead of developing hundreds more square feet, RocaPoint will take 50 acres of the site and design open, green spaces featuring manicured lawns and a dog park. RocaPoint expects to spend millions of dollars on those areas.
“Those places have become super important. They are not just afterthoughts,” RocaPoint principal Phil Mays said. He called the planned village green “an extension of a community and a connection in exchange for additional profits.”
Office developers are also pumping capital into outfitting common areas from what once may have been simply ornate spaces into gathering hubs not only for tenants, but even the public in some cases. Chicago-based Zeller Realty just spent $5M at its 1.1M SF Fifth Street Towers office complex in Minneapolis on the common areas alone, its principal, Bob Six, said.
The focus: creating gathering places for all people that instill a sense of community, especially as more tenants cram more employees into smaller spaces.
“The focus of this is to really make the nearby asset more sticky,” Six said.
The change wasn't smooth at first. Six said Zeller's property managers initially rebelled against the idea of creating spaces to lure people to just mill about and meet. They saw them as cost traps that would welcome loiterers and increase cleanup costs. He said the exact opposite happened.
“What we're finding is it becomes a town center where people meet their friends from other buildings and they take their lunch with them,” he said.
Zeller is now engaging in capital projects on common areas at other key buildings in its portfolio: Capital Center in Minneapolis, Resurgens Plaza in Atlanta and 311 South Wacker Drive in Chicago.
For some office landlords, this is less about spending money on common area projects and more about allocating it to design of those common areas and a focus on public gatherings, CBRE Global Investors Head of U.S. Asset Management Mark Zikakis said.
A decade ago, an office building lobby would be “highly ornate, but it would be a pass-through location where you would come into the building, head right to the elevator and go up to your space,” Zikakis said.
Now, CBRE Global Investors and others are designing tower lobbies to mimic the lounging, welcoming atmosphere of hotels.
“We're trying to create such a unique environment that we want to lure and help our tenants bring their people back into the office,” he said.