The Suburban Office Makeover
Why does this building exist?
Why do tenants want to be here?
How can we improve it?
These are three questions that attendees were asked to think about during the “Extending the Life of Aging Office Assets” session at CRE.Converge 2017 this week. Over the course of the lively discussion, three panelists covered several aspects of a hot investment trend: investing in the suburbs.
Companies love the suburbs
Investors are making a big bet on suburban office spaces. The buyer pool in the suburban market tends to be from private capital. An advantage of private capital buyers (mostly families) is that this group isn’t looking at a three- to five-year exit strategy. Instead, they might keep the property for 10, 15 or 20 years.
In Chicago, even though the McDonald’s headquarters in Oak Brook is moving downtown, don’t expect more companies to flee the suburbs. Two of the panelists based in Chicago said they’ve seen a big increase in demand for companies who are looking for suburban locations. That’s because it’s more cost-effective and easier for a majority of employees to work out in the suburbs.
Houston, a city without mass transit, is seeing several energy companies flock to the suburban market – some as far away as 26 miles from downtown Houston.
Aaron Thielhorn, managing director of Trammell Crow Company, shared a quick case study of how HP sold off its 500,000-square-foot empty office building. Now, the revitalized building is home to Noble Energy Center.
“We saw it as such a good deal, especially because it was near a good school district,” Thielhorn shared. “We bought it for cheap – $32 per square foot. Like most companies, HP didn’t want to invest in real estate capital, but we were able to spend more money on improving the building. We put in a fitness center, elevators, cafeteria and acquired 4.7 acres of green space.”
Millennials are growing up
The panelists expect to see millennials move out to the suburbs within the next five years.
“We’ve heard for years that millennials don’t buy homes or cars, but millennials are going to be our biggest home-buying group,” Daniel Deuter, senior vice president of CBRE said. “We’re going to start seeing a wave of millennials moving out to the suburbs.”
That’s because moving out to the suburbs is a big cost savings, especially for young families with children. The Chicago Public School System isn’t that desirable and if young millennial families stay in the city, they often send their kids to private school – a price tag of about $20,000 a year or more per child.
“Schools are a big driver of millennials heading to the suburbs,” Bryan Rosenberg, director of HFF, said.
How to improve old, suburban property
Each panelist shared some tips and tricks on how to turn a “B” suburban building into an “A.” Here are a few of their ideas:
- Design a better lobby. Instead of granite lobbies with high ceilings, take a cue from Create a cozy, wi-fi friendly lobby with community tables for tenants to plug in and work.
- A little landscape goes a long way. Forget the concrete jungle. Plant some azaleas. Mother Nature will thank you.
- Build a conference center. Get rid of your stuffy conference center from the 1980s. Make sure the new one features natural light, exposed brick and plenty of power outlets.
- Redo your fitness center. Build a fitness center that eliminates a tenant’s need for a gym membership. Pro tip: Hire fitness trainers.
- Go to the roof. Rooftop decks are expensive, but tenants will swoon over your fire pits and comfortable seating arrangements.
This post is brought to you by JLL, the social media and conference blog sponsor of NAIOP’s CRE.Converge 2017. Learn more about JLL at www.us.jll.com or www.jll.ca.
Jessica Levco is a freelance writer based in Chicago. She has 8+ years of experience with brand journalism, blogging, whitepapers, managing social media accounts and web/mobile content.