Office Landlords Increase Focus on Enhanced Workplace Experience to Retain Tenants

A sea change is taking place in the way companies use office space design, amenities, and location to attract the most-talented employees to their firms. Speaking at a ULI Boston event in May, panelists said that while lease flexibility is key to attracting desirable tenants, so is the user experience of the building itself.

Moderated by Douglas Gensler, managing director and principal of architecture firm Gensler, the panel featured John Lynch, vice president, Reebok, which relocated its headquarters last fall from the suburbs to downtown Boston’s Seaport District; Sam Schaefer, managing director, Tishman Speyer, which owns and operates 111 million square feet (10.3 million sq m) of office space around the globe; Ryan Simonetti, cofounder and chief executive officer, Convene, which applies a “workplace-as-a-service” platform to manage amenities and event space for large landlords; and Chris Smith, sales manager and director, WeWork.

The change in the approach to office space is being driven by a series of influences, Gensler said, including the impacts of the shared economy and the migration to the cities by companies angling to be nearer to talent, particularly millennials. Organizations are no longer looked at in terms of five- to ten-year projections, but in six- to 12-month business cycles because companies now seek greater flexibility in their portfolio, he said. Companies are also seeking an “enhanced experience” within the building to help attract talent, he said.

Smith said this is what WeWork offers to large corporate space users, which he terms “enterprise customers.” His company offers these tenants three primary benefits, he said.

“For us, the one-, two-, or three-year terms that we can offer an enterprise customer are significantly more agile than the historic five-year lease,” he said. “Second is the speed of sale: we can have you up and running within a month. And third: talent.” Enterprise customers constitute one of the fastest-growing segments of WeWork’s business, taking space at WeWork to attract and retain millennial talent. “Fundamentally when you really strip it back, our company is built on three key pillars: our space, community, and services.” Smith said. “And our belief is that mix is critical to the movement and trends that business is moving toward.”

Convene was founded on the idea of running an office building like a hotel from a human-experience perspective, Simonetti said. Landlords must respond to two things in the current market, he said—flexibility and human experience in the building. Rather than try to undertake that physical and cultural transformation on their own, building owners—including major players such as Brookfield, BlackRock, and the Durst Organization—are partnering with Convene, which implements the “next-generation operating system for a building,” Simonetti said.

Convene designs the meeting, hospitality, and event spaces and the flexible workspaces in the building, “and infuses the building with a technology-enabled hospitality services offering which brings that experience to life for the people in the building,” he said. Creating such an environment increases a firm’s ability to attract and retain employees and reduces turnover, thereby making lease renewals more likely, he said. “What we’re saying is, let us help you solve flexibility and human experience in the building—to ultimately do one thing, which in the landlord business is to increase returns to [limited partnership] investors.”

Schaefer said Tishman Speyer has learned a lot from market disruptors such as WeWork and Convene about the importance of amenities and the level of service the firms offer. In response, Tishman has increased the amount of amenities it offers in order to enhance the experience tenants and their employees have in the company’s buildings, he said. The firm actively engages with tenants to more fully understand what is driving their decisions, how they are using space, and what new markets they are considering.

“The metric for us right now that we’re really thinking about is enhancing the experience in our buildings, and that’s a big strategic and cultural shift that I’ve recognized at Tishman Speyer,” Schaefer said. “We’ve always been governed by the almighty square foot, . . . and the big shift for us is moving away from the square foot metric and [becoming] more about people.” Though it is expensive to add fitness centers and amenity spaces and increase services, he conceded, “at the end of the day, if we’re able to retain our tenants and do business with them in multiple markets, then it’s a relatively cheap investment.”

Companies also increasingly recognize the importance of being where the talent wants to be—in the cities. Boston has seen a steady stream of large corporations moving in, from the GE move from Fairfield, Connecticut, to the recent relocation to Cambridge of Dutch health care technology company Philips and its 2,000 employees from Andover, Massachusetts.

Reebok decided to move from its corporate campus in Canton, Massachusetts, to the Seaport District in December 2016 and began to occupy its new world headquarters in September 2017. The move was driven by the need to appeal to prospective employees, Lynch said—“not just millennial talent, but talent of all ages that wants to be part of the energy of the city, and that was really important for us. It was the energy, the innovation, and the creativity of the city that we really wanted to attach ourselves to.”

Because a high percentage of Reebok employees live in the suburbs, Lynch said he expected to lose a significant percentage of the workforce as the company moved downtown, about 13 miles (21 km) from its suburban location. Instead, he said he was shocked by the lack of attrition, which was the lowest in years, he said. He was also surprised by the number of employees willing to take public transportation for the commute. Reebok negotiated with the city for additional parking spots at the new headquarters, but found they were not needed. Of the 750 employees who made the move, only 140 now drive—less than 20 percent—compared with 95 percent who drove when the company was in Canton.

Reebok also radically altered the interior design of its new office space, eliminating traditional offices and dedicated workspaces, even for the company president. The result has been a dramatic increase in the level of cooperation, Lynch said. “Informal meetings are way, way up and formal meetings are way, way down,” he said.

The transformation in the industry is designed to enhance the experience for all the people who spend a significant portion of their lives in office buildings, which also increases the ability of landlords to attract and retain tenants, Schaefer said. “And if you distill it down, that is ultimately what our strategy is all about,” he said.

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