As technology transforms the workplace, the needs of cutting-edge workers will reshape our cities.

When internet search giant Google sought to lease office space in Pittsburgh a couple of years ago, it passed on glitzy office towers and instead opted to convert a former Nabisco bakery downtown.

The firm’s unconventional office layout includes second-story footbridges named for the city’s bridges and a conference room–sized hammock dangling over the lower story.

“Most tech companies today like to be in old buildings in gritty neighborhoods rather than in sparkling skyscrapers or a new industrial park in suburbs,” says Tom Murphy, a senior resident fellow, ULI/Klingbeil Family Chair for Urban Development, and a former mayor of Pittsburgh. “What these companies are looking for in real estate is different from traditional offices. They want something much more open and more casual.”

Google’s decision to locate its Pittsburgh operations in the inner city is but one way America’s ever-expanding knowledge economy is changing the real estate sector—something it is expected to continue doing. Not only are high-tech companies looking for unusual spaces that are reflective of their corporate culture, but firms in the knowledge sector are also reviving inner-city neighborhoods, spearheading the drive for sustainability, and even changing the way some new buildings are designed.

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The Fitzgerald, a mixed-use development by the
Bozzuto Group in Baltimore’s Mount Vernon
cultural district.

“Look at what Apple has done,” says Christopher B. Leinberger, president of LOCUS, a real estate policy advocate for walkable and transit-oriented development (TOD); he is also a senior fellow at the Brookings Institution and founding partner of Arcadia Land Company. Apple, he says, “has turned low-paid clerks into retail ‘consultants,’ and sales per square foot at Apple stores have gone to levels no one ever dreamed possible. Apple stores are grossing $4,000 to $5,000 per square foot [$43,000 to $54,000 per sq m] in sales versus the previous record high of $1,500 per [square] foot [$16,000 per sq m] for jewelry stores. It’s like a pole-vaulter who soars 60 feet rather than the current world record of 20 feet.”

The digital era of Google, YouTube, Facebook, and others has even created a new real estate asset class—data centers. Spurred by corporate demand for computing networks and communication speed and power, wholesale and enterprise data center properties have been one of the few commercial real estate sectors to expand over the past three years. Pent-up demand for internet speed has sparked a new flurry of construction, acquisitions, and equity-raising activity by data-center builders and investors, with hundreds of thousands of square feet of new facilities planned, according to the CoStar Group, a Washington, D.C.–based commercial real estate provider of information, analytic, and marketing services.

The knowledge economy is even changing how business will be done in the years ahead, says Thomas Frey, executive director and senior futurist at the DaVinci Institute, a futurist think tank based in Louisville, Colorado. “In the near future, large corporations will be setting up ‘business colonies’ outside corporate headquarters to handle specific projects,” Frey says. “Individuals will come together when they are needed, bringing skills and talent to bear on specific projects. These business colonies will be organized around a topical area such as social mapping, data mining, metallurgy, and so forth. A company will lob projects over the corporate walls to the business colonies; the projects will be completed and sent back to corporate. Then, the people in the business colonies will prepare for the next project.

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Perkins + Will created an innovative interior
design for IDEO, a cutting-edge global
design consultancy in Chicago.

“This is a way for large corporations to expand capability without adding to their headcount,” he says. “It’s getting increasingly expensive to hire people full time, so companies are looking at project-based work where employees are temporary.”

Multifamily development also is being affected by the knowledge economy, says Bernard V. Holnaider, principal in the Baltimore interior design and architecture firm RD Jones. “We are seeing an increasing demand for ‘we work’ areas in some of the multifamily buildings the firm is now designing,” he says. “These areas are flexible, office-like spaces with adaptable workspaces/desks that can be increased or decreased as demand commands, as well as small conference rooms with state-of-the-art technology. Printer stations and coffee service [are] expected. In most of our apartment building designs now, we are offering lots of work-at-home options as well as flex spaces. There are also e-lounges, business centers, and conference rooms that offer flexibility. Tenants have come to expect options that work for them.”

Residential lobbies are being transformed be­cause of the internet, says Caroline Gould, brand manager at RD Jones. “Connectivity is foremost in all our designs now,” she explains. “Gen Y is a social bunch, and they are demanding a design-forward look—somewhere [they] can be proud to show off, maybe even feel a little ‘VIP.’ Entertainment space is also key. At some projects, we have done pub rooms, pool decks, and movie theaters. The days of the lobby pass-through en route to the elevator are [over]. Each lobby we design borrows from our hotel cousins in that it makes you want to be there. We strive to enable energy creation in all our spaces. We have designed lounges, entertainment kitchens, and internet cafés.”

Because one of the driving forces behind a company’s strategy today is attraction and retention of talent, many corporations are catering to employees. More than ever before, place matters. Creative types want to live in communities that are unique and inspiring. Some companies, like Google and Apple, seek to eliminate distractions for their workers, allowing them to remain fully engaged in their work by creating a campus setting that includes public art, landscape sculpture, and jogging trails.

“Knowledge companies tend to be places where there is less independent working, and more combined creativity,” says Joan Blumenfeld, a principal in the New York City office of Perkins + Will, an international design firm. “While more companies are encouraging employees to work at home, knowledge firms and other creative types of firms require teamwork and want their people in [the] office. So they want a headquarters with more amenities—a cafeteria, a fitness center, a game room, maybe even an area to take a nap. Google believes you never can tell when that next spark of genius will occur, so they want their employees to mingle together in the Googleplex.”

Gen-Xers and millennials are more comfortable blending work and home life than their baby boomer parents, Blumenfeld notes. To appeal to these key employee demographics, companies are increasingly changing their workspace design to reflect younger workers’ values, incorporating more open floor plans and common areas with extensive seating and places conducive to collaboration, while providing employees the technology to connect from anywhere.

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ISITE Design’s new headquarters in Portland,
Oregon, was designed to feel like home rather
than like a traditional office.

“Many knowledge-economy companies put increased emphasis on teaming and collaboration,” she explains. “Businesses are thinking about their physical workspaces much more deliberatively and [about] how they can be used to achieve a competitive advantage. People are being taken out of offices and put into a workspace environment, where they are much more likely to talk to each other. I don’t know if the real estate community has gotten their heads around it yet.”

Some knowledge-economy companies are even using their headquarters to send a message to potential employees. Portland, Oregon–based digital agency ISITE Design invested in a new headquarters building to help its employees achieve their full potential and recruit top talent in a competitive labor market. The building’s redevelopment involved staff input to ensure that the finished structure reflected the firm’s dream work environment (think fireplaces, a library, and a kitchen that feels more like home rather than a traditional break room with a water cooler).

Rounding out the remodel are environmentally friendly reclaimed wood walls, custom LED lighting that gives each person the ability to adjust the light over his or her desk, skylights for natural lighting, bike racks, and a brainstorming room with a community deck. In addition, the office space includes a community room for use by local associations and private incubator offices for rent by local entrepreneurs.

The owners sought to create a space reflective of the value they place on their team. “We wanted to make a statement to current and prospective employees through the purchase and redevelopment of the building that we are here for the long haul and dedicated to providing the absolute best place to practice your craft,” says Paul Williams, president and co-owner of ISITE.

Today’s creative class drives the knowledge economy, and participants tend to want both their home and workplace to be in a walkable urban place with coffee shops, entertainment, and stores, says Leinberger. “They want to walk to work, work at weird hours, bump into people in the hall and the street, find out what is going on and how to capitalize on it,” Leinberger says. “If you ask the creative class to drive an hour to Alpharetta, north of Atlanta, good luck. They don’t want to spend 25 percent of their household income to own a fleet of cars. Most millennials are more conscious about paying all that money and then polluting the planet to go to a place that is sterile and diametrically opposed to what they want.”

Thus, builders, architects, and designers must think in a different way. Over the past half-century, the U.S. real estate sector was like NASCAR, Leinberger adds. “NASCAR drivers drive 150 miles an hour and just go straight or turn to the left,” he says. But building professionals now have to do things differently, he says, and learn how to develop complex and more risky walkable urban projects.

“We in real estate now have to learn how to fly fighter jets going 600 miles an hour, turning right, left, and going up five miles—or crash and burn in seconds—while being shot at. My research at Brookings shows that around a third of demand for walkable urban development is going to be satisfied in central cities, but two-thirds will be in the suburbs. We have tremendous suburban opportunities by transforming dying malls and suburban town centers into great, walkable urban places.”

With more knowledge-economy companies seeking an urban setting, will this mean the death of the suburbs? No, says futurist Frey. He predicts that driverless, or robotic, cars—autonomous vehicles providing the transportation capabilities of a traditional car—will dramatically change the suburban real estate landscape over the next decade. Google’s driverless car has already covered over 200,000 miles (320,000 km), and Mercedes-Benz is testing a car that is driverless in the city. Within two years, Volkswagen will have one, too, he says, adding that by 2015, General Motors will have its first model. 

“With driverless cars, people won’t need to own their own vehicles. They will be able to reserve a unit with their computer or smartphone, and be picked up and taken to wherever they want to go while calculating the most time-efficient routes, so traffic won’t be such a nightmare,” Frey notes. “Also, we will no longer need parking lots or garages. Driverless cars will shift how we think about suburbs and how we get along in the city. All this is going to start within the next decade.”

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TIAA-CREF’s Fifty Fremont, a 42-story
office tower in San Francisco, is attracting 
knowledge-economy companies such as
Salesforce.com.

Thanks to knowledge-based companies, office requirements must be an evolving component of any real estate owner’s or developer’s strategy. This state of transformation is the constant Darwinian reality of the real estate industry, says Gerald Casimir, managing director of global real estate and head of global real estate asset management for TIAA-CREF, a New York City–based financial services organization with $464 billion in assets under management. “Those properties that do not and cannot adapt will go the way of the dodo bird, and those that can will remain relevant,” he says. “For every consolidating firm in the CBD [central business district] becoming leaner due to operational efficiencies, there may be an expanding social media or technology company looking to thrive in an area with access to an educated and diverse labor pool.”

Sustainability, especially important to the companies driving the modern knowledge economy, is also a smart business approach and societal imperative. “By saving energy, reducing a property’s carbon footprint, and conserving resources, a strong focus on sustainability not only saves money over the long term, but also meets the philosophic change driving the social consciousness of the modern business age,” says Casimir.

He notes that cloud-computing company Salesforce.com recently signed a 400,000-square-foot (37,000 sq m) lease at TIAA-CREF’s Fifty Fremont building, a 42-story office tower in San Francisco. “Through significant investment in both modernization and infrastructure improvement, the tower was able to achieve the highest level of sustainability from the U.S. Green Building CouncilLEED Platinum EB. These changes, and the tower’s efficient floor plates and infrastructure, allowed us to attract one of the Bay Area’s flagship technology companies,” Casimir says.

The takeaway message for the real estate sector? To remain competitive in the age of the knowledge economy, real estate owners must keep pace with an increasingly mobile, internet-connected workforce as well as with ongoing changes in technology. They must also support the way companies are structuring their staffs to foster more collaboration and efficiency, while addressing the values and attitudes of new generations of workers.