No More 'Asking For The Moon.' The Office Amenity Race May Finally Be Slowing

As office tenants exited leases during the pandemic, landlords rushed construction crews into their spaces. Empty floors once occupied by analysts and bookkeepers became gyms and lounges. 

The renovations have made a plethora of amenities a common expectation for companies returning to the office. But landlords and brokers speaking last week at Bisnow’s New York Office Leasing & Asset Management Conference openly wondered: How much is too much? 

“I think the discussion on amenities has been a pendulum through Covid. It has swung very far, and may be swinging back a little bit,” Norges Bank Investment Management Senior Investment Manager Grayson Hoffmann said onstage. “I don't see tenants asking for the moon anymore.”

New York City office leasing has steadily accelerated over the past year, with trophy buildings leading the charge. In the second quarter, leasing volume in Manhattan reached 8.4M SF. Class-A leasing made up 6.9M SF of that, the highest quarterly total since the second quarter of 2011, according to a report by Cushman & Wakefield.

The surge in leasing has pushed rents up, finally leading tenants to consider lower-quality space and expand their search from Midtown, where most of the postpandemic action has centered, to other areas of Manhattan. 

It has also made some tenants realize that the presence of a golf simulator is not too critical to getting workers to return to the office.

“There's a balance, and it's dependent on where you're located, the size of the buildings and the demographic,” CBRE Vice Chairman Paul Amrich said at the event, held at 75 Varick. “I think we've also figured out that, unless you've got a really big asset, we all don't want to run on a treadmill next to each other in the middle of the day.”

A survey of office occupiers by CBRE found more than 85% of tenants say that transportation would impact leasing and rent negotiations. Food and beverage availability has become the second most important feature, with 75% saying it factors into their decision-making. 

Both necessities have been reflected in Manhattan’s leasing trends. Buildings near the largest transit hubs have the lowest vacancy in the city, according to the Cushman report. Penn Station, World Trade Center and Rockefeller Center have rates of approximately 21%, 17% and 18%, respectively, compared to Manhattan’s total of nearly 23%.

Though the area surrounding Grand Central has a vacancy rate that exceeds 22%, it inked 1.1M SF of leases in Q2, the highest quarterly total since Q3 of 2018.

“The location and the neighborhood is really an amenity,” said Jason Alderman, Hines senior managing director and head of the company’s New York office.

CBRE’s occupier survey found that some of the most talked about amenities actually don’t impact many tenants’ decisions. Of those polled, 46% said they don’t care about outdoor space. More than half of respondents said that fitness facilities, daycare and technologies like building apps don't impact their decision-making.

“We see a lot of empty, beautiful space,” Convene Hospitality Group co-founder and CEO Ryan Simonetti said during the event.

Part of that is office owners’ desire to pack in as many glossy amenities as possible to appeal to tenants.

“Do less better,” Simonetti said. “You're jamming the gym in, with the event space, with a coffee bar and daycare. Could you visualize how the users can maneuver through that space?” 

Giving up office space for amenities that don’t directly contribute to the bottom line is expensive — and can be a waste if those spaces go unused. Infuse Hospitality Chief Growth Officer Wendy Powell said one of the keys is to monetize those spaces, particularly after the workday. 

“We are taking a very deep focus on that third part of the day,” Powell said. “So, our business is from 7 in the morning to 8 o'clock at night. What are we doing in those last three or four hours?”

Among the ways to do so is to have cafes serve alcohol after 5 p.m., opening up rooftop spaces to the public and allowing employees to order from street-level restaurants via phone apps. Adjusting to how people operate can both bring employees into the office and transform neighborhoods into 24/7 destinations, she said.

“People don't just go, ‘What's in the cafeteria today? I’m going to go down there and see what they have.’ It’s all happening on the phone,” Powell said. “We're putting that technology right into the tenant’s hands to stay in the building and treat the building as part of Restaurant Row.”

Trinity Wall Street Managing Director of Asset Management Sujohn Sarkar said sometimes the firm begins planning with the tenants before a lease is ever signed, catering the amenities to the employer’s needs. 

“Yeah, it costs a lot,” Sarkar said. “But you're able to land those transactions because you had that team of architects, engineers and brokers.”

For Convene, a flexible workspace company, specialized build-outs for individual tenants is difficult. Instead, it operates brands based around general types of tenants.

Whereas Convene offers large rooms, sophisticated design, an on-site tech team and customizable dining, the company’s more accessible brand — etc.venues — is more communal, with concurrent event spaces and catering and plug-and-play technology. Location is also informed by the branding.

“Everything starts with: Who are we serving? Why are we serving them? What's the brand next to who we’re serving and where should that brand be?” Simonetti said. “That makes life a lot easier for our real estate acquisitions.”