Dealing With Disruption: How Developers Are Being Pulled Into The Future
The world is changing, and like other cities across the country, New York’s office market is just now figuring out how to keep up.
The increased importance of technological connectivity has added new concerns for landlords; new construction materials have given developers more options; and tenants are starting to demand more and more of the amenities pioneered by tech titans like Google and Facebook in their Silicon Valley HQs. We heard about how firms are responding to those trends—and how they’ll shape the office projects of tomorrow—at Bisnow’s 4th Annual Workplace of the Future forum.
“Uber’s market cap is around $60B right now,” says Cushman & Wakefield EVP Josh Kuriloff. That's bigger than GM, while WeWork's $16B market cap is right near Boston Properties, the country's biggest landlord. "Where does it go from here? It feels like the whole world is being turned upside down.”
That's Josh on the left, snapped with WiredScore's CEO Arie Barendrecht and Convene CEO Ryan Simonetti.
Indeed, the tech industry’s meteoric rise has begun to exert a palpable influence on the office market lately, whether through direct disruption by firms like WeWork or simply through osmosis, as more tenants clamor for “creative office.”
Some developers are meeting that demand head-on, building ground-up projects tailored to the needs of tech tenants and others who want to adopt their approach to the workplace. But where does that leave landlords managing existing buildings?
“Google’s offices are basically an all-expenses paid Four Seasons masquerading as an HQ,” says Ryan. “If you’re competing against that, how can you afford to do it? Our business model is more or less to present landlords with the option of offering that experience and having all of the tenants share the cost.”
Convene operates conference spaces that also have amenities like fitness centers, kitchens and common areas that can be used by other tenants in the building, as well as Convene’s conference attendees.
RXR Realty president Michael Maturo recently told Bisnow he’s found leasing to firms like Convene to be an effective way to deal with demands for increased amenities without drastically overhauling the building itself. Big landlords like Brookfield, Blackstone and the Durst Organization have also recently begun working with Convene to fill a similar need at their buildings.
Regardless of how landlords choose to respond, the demand for hospitality-style amenities isn’t going away anytime soon, says Neal Weinstein, a partner at law firm Ingram Yuzek Gainen Carroll Bertolotti (snapped above in the middle of Fitness Design Group's Bryan Green and Colliers' Michael Cohen).
Millennials' demands are clear, and the research backs up the benefits of acquiescing to them, he says. “Areas that foster socialization, recreation areas and in-house activities like yoga, all of that is here to stay, even if it looks a bit different from landlord to landlord and building to building.”
Michael, Colliers International’s NY Tri-State president, says not all firms will embrace creative office with open arms, and cautions about reading too much into the tech industry’s influence.
“This country has a rich history of overvaluing things during their inception phase,” he says. “I certainly don’t think they’ll be wiped out, but whether Uber is really worth $60B, and what that really means, I don’t think is set in stone.”
Despite the fact that the average life span of a firm is now just seven years—a statistic cited by several panelists to boost WeWork’s growth potential—Michael, still glowing from his Tony win for being a producer on Hamilton, says some companies will still favor longer leases if they require an intensive build-out to meet their needs. Plus, law firms and big banks won’t be giving up their private offices anytime soon.
New construction is headed full steam ahead toward creative office, with several panelists echoing Neal’s point about both tenants and landlords increasingly waking up to the importance of amenities that can affect productivity.
“I recently had a developer tell me ‘the people are the biggest asset; the building is just a place to put them,’” says Paladino & Co CEO Tom Paladino. “What does that really mean for designers? We don’t have any human health experts on our staff, but the owner just declared that’s what he wants us to focus on. So we’re still sort of processing that.”
At the same time tenant demands are changing, new construction materials have given developers more options for how to meet them.
“There’s been a sharp difference in how buildings are constructed since 2000 or so,” says Andrew Wiener, a director at L&L Holding Co (snapped above with Breather's Maggie Burns and RXR's Michael Maturo). “New steel, glass and other materials have dramatically changed what you can do.”
L&L is just wrapping up two huge demonstrations of what cutting-edge building materials can accomplish at 390 Madison Ave and 425 Park Ave, where the developer is gutting the aging buildings and creating open floor plans with double-height ceilings, common areas and other amenities designed to appeal to the highest of high-profile tenants.
For New York in particular, panelists say the new focus on amenities has begun to break down traditional ways of looking at office space by neighborhood, with the building itself starting to become more important than its location.
“Tell me a bad neighborhood in Manhattan. There really isn’t one,” says David Greene, MHP’s president of brokerage services (snapped above in the middle with VTS' Andrew Flint and Bisnow's own Miles Bloom). “These days it depends much more on what people are looking for in terms of amenities.”
New York’s aging transportation system still has a ways to go to keep up with that reality, however, panelists say.
“Penn Station is awful. The Port Authority is not much better,” says Andrew, VTS’s head of business development. “The 4, 5, 6 line is freezing cold in the winter and you’re standing three-deep on the platform. So for all its merits, I think a dramatic focus on New York’s public transportation system is going to be needed to really bring us into the 21st century.”