Once Left for Dead, Suburban Office Making a Comeback - CoStar Group

Once Left for Dead, Suburban Office Making a Comeback - CoStar Group
About three-quarters of all U.S. office space is located outside the city center in low-rise and medium-rise properties in suburban business centers across the country. During the Great Recession and its aftermath, suburban office markets took an outsized hit. 

Some analysts wrote the obituary of the suburban office campus as downsizing companies shed millions of square feet, in many cases consolidating into buildings closer to public transit in urban centers. Suburban vacancy rates spiked above 20% and 30% in many markets. 

As the economy has slowly warmed up, the office market recovery has reached into suburban markets, especially ones in so-called "premier" locations where technology and energy related companies are driving demand growth. 

Overall, the suburbs have garnered more than their usual share of leasing demand over the past two years, according to an analysis by CoStar real estate economists. Since the beginning of 2012, suburban markets have accounted for a whopping 87% of office demand -- which is 13% more than their 'fair share' based on the total market size compared with CBD office markets, according to data presented at CoStar’s recent third-quarter office review and forecast. 

Top-shelf submarkets are driving the suburban office recovery, including Waltham/Watertown in Boston, Northwest Austin, Bellevue near Seattle, and Katy Freeway West in Houston, to name a few, are leading the office recovery. Such markets make up just 19% of the office inventory but drew 29% of the demand over the last six quarters, according to CoStar data. 

With all the talk about the shift in office demand to CBDs and tenants moving from suburban to downtown markets, "that's not necessarily happening in spades," noted Walter Page, director of office research for CoStar. 

Suburban office absorption tends to perform well during economic booms and recovery periods, while CBD properties tend to perform better during downturns as companies take advantage of lower rental rates to secure space closer to the urban core. 

With the recovery in the overall U.S. office market gaining momentum and rental rates increasing in the choicest CBD trophy buildings, more office users are taking a second look at the suburbs, and it's beginning to show up in net absorption. 

A diverse set of markets that include Sacramento, San Jose, Austin, Kansas City and Charlotte have posted some of the strongest net office absorption among suburban markets, paving the way for occupancy and rent growth. 

Even the long-suffering suburban submarkets of Chicago are seeing rising occupancy and the beginnings of rental increases in their highest quality buildings. 

"Tenants are starting to realize if they want Class A space in the northwest suburban market, they have to act soon to advantage of the aggressive economics that have been offered over the past several years," said Jack Reardon of NAI Hiffman in a report on the Chicago area’s suburban office markets. 

"There are few options for tenants looking for over 100,000 square feet. Over the next 12 months, demand will continue to increase, pushing rents in the highest quality buildings higher, accelerating the recovery in lower-quality buildings." 

Although the vacancy rate hovers over 20% in the East-West Corridor -- the largest of the Chicago suburban markets -- vacancy in the highest quality buildings with the best amenities was only 14%, according to BAI Hiffman’s Dan O'Neill. 

Landlords all over the country are noting a similar trend. 

"Similar to the [second quarter], we’ve had increasing momentum in suburban office leasing," said Denny Oklak, chairman and CEO of Duke Realty (NYSE: DRE). "The suburban office sector has continued to show more positive trends." 

Although national vacancies are in the mid to high teens, net absorption stayed positive for the 14th consecutive quarter and rental rates per square foot are up a few percentage points since the end of last year after nearly five years of stagnant rent, Oklak told investors. 

Amid improving fundamentals, Duke Realty signed nearly 1.4 million square feet of leases in its suburban office portfolio in the last quarter, including a 58,000-square-foot lease with Farmers Insurance in South Florida. 

Duke saw continuing strong suburban leasing activity in the Midwest, most notably in St. Louis with an 87,000-square-foot lease renewal with Aetna and a 75,000 square foot renewal with a major accounting firm in Indianapolis. 

Even developers are becoming active again in certain submarkets such as Raleigh, NC, where Duke this week announced it will build another speculative suburban office project in its Raleigh Perimeter Park development. 

Nearly two-thirds of Perimeter Three, a 245,352-square-foot, six-story building, is pre-leased to Teleflex, a medical device company. Perimeter Two in Raleigh, started earlier this year, is now 91% pre-leased and scheduled for delivery in the second quarter of 2014, according to Duke Chief Operating Officer Jim Conner

@pcionesource begins demolition of the BCA Stonecrest parking... on Twitpic

@pcionesource begins demolition of the BCA Stonecrest parking... on Twitpic

Installing Oak Wainscoting At A New Heart & Vein Medical Office

Installing Oak Wainscoting At A New Heart & Vein Medical Office

Feverish Pace of MOB Development Fueled By Strong Demand, New Occupancy Trends - CoStar Group

Feverish Pace of MOB Development Fueled By Strong Demand, New Occupancy Trends - CoStar Group


The hot medical office building (MOB) market is likely to remain in at least a semi-feverish state as the transition of common medical procedures to outpatient clinics accelerates with full implementation of the Patient Protection & Affordable Care Act, fundamentally changing the nation's health-care delivery system. 

Health care was the largest job-creation sector in 2012, with most of the jobs added in ambulatory care facilities, a trend that will continue this year according to Jeffrey Cooper, executive managing director of Savills US. 

Continued health-care employment growth, combined with the expected increase in demand for medical crae services from the aging population is expected to continue to drive development of medical ambulatory care facilities, including MOBs, surgery centers, urgent care clinics and diagnostic lab facilities. 

"That's where all the growth is going, with the Affordable Care Act kicking in over the next 12 months, including requirements for mandatory coverage," Cooper said. "Health-care systems are really gearing up to handle those patients, and much of it will be through development of non-acute care facilities. In many ways, the ACA will be very positive for health care real estate, helping create demand for outpatient facilities." 

While diminished Medicare/Medicaid reimbursements are a risk given the looming threat of federal sequestration spending cuts, most experts continue to view the market's growth prospects favorably. 

"We believe strong demographics will win out, and our expectations are for continued strong prospects in the health care sector," said real estate economist Carlos Ortea, who analyzes the medical office property market for Property and Portfolio Research (PPR), a CoStar company. 

Despite the number of new projects breaking ground in recent months, CoStar data suggests that MOB development slowed in fourth-quarter 2012 -- though it’s likely more of a pause, Ortea noted. 

MOBs accounted for 7% of total office construction in the top 54 markets tracked by PPR, down from 11.5% in fourth-quarter 2011 and below its 10-year historical average of 11.3%. Also, fourth-quarter construction of medical office rentable building area (RBA) under way as a percentage of total medical office inventory was 0.6%, down from 1% in the last three months of 2011 and lower than the 10-year average of 2.3%. 

"I would expect that this is a short-term trend," Ortea said. "The delivery of medical office space as a share of total office space has generally climbed in recent years, accounting for 17.7% of total office deliveries from 2007-12, up from its historical trend of 14.6%." 

"In the near term, I don’t think oversupply is a problem. But could very well be an issue in the medium to long term since supply has historically doubled that of national office," he said. 

Most of the increase is linked to long-term demographic trends, including population growth and the retirement of the baby boom generation. That said, Ortea believes more developers will likely move forward on projects to capture the potential increase in demand springing from the ACA health-care legislation. 

The Patient Protection & Affordable Care Act (ACA) requires hospitals to invest in and implement many costly new systems and procedures at a time when they also face lower Medicare and private insurance payments, all of which is forcing them to look for possible ways to cut costs. 

Duke Realty (NYSE: DRE), a major developer and operator of MOBs, said in its 2013 predictions this week that implementation of the ACA should continue to drive changes already under way that will affect demand for health-care real estate demand in coming years, despite the recession's lingering aftermath, lower hospital reimbursements and other issues. 

Increasingly, MOB developers are expected to design more sophisticated facilities as hospitals move higher-acuity care such as post-surgical recovery and other complex procedures off the hospital grounds, the Indianapolis-based REIT predicts. 

Also according to Duke Realty, hospitals are expected to make wider use of "freestanding emergency departments" and urgent care clinics, with operators such as Baylor Health System partnering with specialized for-profit emergency department operators to build new facilities. For-profit companies are also building standalone emergency rooms as an end unto themselves at high-traffic, retail-oriented sites. 

MOBs offering higher-acuity and/or non-acute care, for example North Fulton Hospital’s new North Fulton Medical Plaza in suburban Atlanta, cost less to build, operate and maintain than hospitals and inpatient facilities. These outpatient facilities will need to be designed to a higher, more sophisticated standard than typical MOBs, while hospital may also have an opportunity to repurpose vacated space as services move to medical office buildings. 

To date, freestanding emergency departments have been mostly owned and operated by hospitals. But mainstream providers such as Baylor Health System have recently announced they are partnering with private interests like Emerus to build dedicated emergency centers. In addition, for-profit companies are building stand-alone FEDs as an end unto themselves, at targeted high-traffic, retail-oriented sites. 

"More and more, we’re seeing for-profit [emergency department] companies competing for the typical 7/11, Walgreen’s and McDonald’s sites," noted Don Dunbar, executive vice president of Duke Realty. 

Hospitals, health systems and physician groups are increasingly willing to partner with both for third-party companies specializing in a wide range of other health care facilities, including MD Anderson, which is extending its brand across the nation by partnering with local providers on cancer treatment centers; and Community Health Network, partnering with Centerre Healthcare to build rehab hospitals. The real estate implication is that new, expanded or renovated "branded" facilities might be needed to accommodate these partnerships. 

Lastly, adaptive reuse of other types of buildings such as offices, retail, industrial spaceand even movie theaters for medical use will become a more prevalent health care and real estate strategy, according to Duke. 

"While there might be a dwindling number of vacant Circuit City, Borders and Linens ‘n’ Things stores in the suburbs, there will continue to be other suburban opportunities as chains like Best Buy and even Macy’s downsize," Duke said. In addition, health care reform will force providers to enter into other markets, especially central cities. Kaiser Permanente, Dignity Health and Scripps Health are three examples of health systems that repurpose space for medical use. 

"Many are jumping on old grocery stores," giving potential new life to former retail and office buildings, according to Duke Realty's Dunbar. 

What Makes a Cool Office?

Short answer: It's more than just a billiards table and free soda. Design buffs weigh in on how to build a creative, collaborative, and innovative workspace.

www.lincolnbarbour.com

The Portland, Oregon, office of Parliament Design has more logs than a cabin. It also features plenty of raw concrete, huge open worktables, classic midcentury-modern chairs, and the odd bear rug for rustic charm.

 

7
inShare

For any company, but especially a start-up, an office is much more than just four walls, a bunch of desks, some laptops, and an instant-coffee machine.

An office is a recruitment tool, a second home, a place to hang out with friends, a place to be inspired, and, particularly for entrepreneurs with huge goals, the place that will serve as the launch pad into building the next billion-dollar company.

So it's no wonder so many founders are obsessed with office design. Jason Freedman, founder of 42Floors, is one of those founders.

"The core job of the CEO is to create the space where people can do incredible work," says Freedman. "And when you think of the CEO's job in that perspective, the office becomes a huge part of the job. And yet, it's also the thing they're least qualified to do, because most of the time they've never done it before."

The motto of 42Floors, which is based in San Francisco, is "discover and create your dream office." The start-up collects real estate data in urban areas, and businesses can search its database of available offices without the use of a broker. It's like Trulia for offices. Naturally, Freedman, who previously founded two companies and is an alumnus of Y Combinator, spends a lot time thinking about office space.

"I think that the key prompt there is: Do you care about your company culture?" he says. "If you do, then the office matters. If you're trying to build a company that's going to last a long time, the office is a key component. It's just as important as the way in which you incentivize your employees. For our employees, when we built our office, the office is their second home. It's an important part of how they see their job."

Raw spaces are in--but they're so much more than exposed beams.

It's undeniable that the "urban rustic" theme—the rough-hewn woods, the antlers on the wall, and the wide-plank floors—has seized the design Zeitgeist. Founders want a space that looks raw or unpolished, and developers are willing to pay for that look in order to attract start-up tenants.

"Now we have the strangest thing in the world happening, where developers are being forced to spend outrageous amounts of money to rip out all this expensive-material wall and ceiling, so it can go back to looking cheap," says Freedman. "The initial part of that was that start-ups took offices that no one else wanted. But they made that space into something cool."

So what is it about the raw aesthetic that's so undeniably charming? What's so enthralling about spending time in a space with exposed red brick walls? What sort of psychology is at play?

"These materials are reminiscent of a time when Americans built physical things," says Marc Kushner, the founder and CEO of Architizer, a social network for architects and interior designers. "It becomes an architectural stand-in for building actual stuff--that's really healthy. It's a rougher design. It's different than design a decade ago, which you sometimes felt was so sleek you were going to slip right off it."

He adds, "All these places are using factory windows with leaded panes, they have a tactility that reminds us of a simpler time. They're picking up on the idea that when people are walking away from their computer screens they want some relief."

In the first dot-com bust, when first-time entrepreneurs were raising tons of capital, the expression of wealth was an important design tactic, says Freedman. It signaled to the best engineers: "Look at us, we've raised the money, and now is your chance to become aligned with the Next Big Thing."

But after the first bubble burst, a general skepticism evolved in the start-up ecosystem. Now, employees want to feel they're actually building something from the ground up.

"People want to feel a part of something bigger than themselves," says Freedman. "And when you're all in it together, when Mark Zuckerberg's desk is just another desk on the floor, and everyone is there, and everyone owns it, then being in a raw space where hierarchy has been ripped out, that makes everyone feel part of something special. People shift from an employee mindset to being a team member."

Open floor plans aren't everything.

If the cartoonish, Dilbert-esque idea of gray cubicles and gray desks and gray filing cabinets sends shivers down your spine, you're not alone. Any "cool" office will eschew the Office Space doldrums of the traditional cubicle layout.

So in the last several years, the move away from cubicle structures and toward more open floor plans, where collaboration is as simple as looking across the desk to see your co-worker sitting five feet away, became incredibly popular. Perhaps almost too popular--some designers believe that an open floor plan isn't the quintessential means for having a "cool" office.

Denise Cherry, the design director at Studio O+A, which has designed offices for Facebook, AOL, Microsoft, Square, and Yelp, believes in the importance of something she calls "tertiary spaces": spaces that aren't conference rooms and that aren't personal desks, either. They're in-between areas that are quiet, where technical people can focus without being locked away in some white-walled room.

"A space that's full of collaborative space but has zero quiet space is just as unsuccessful as a space that's full of offices and has no collaborative space," she says. "It's about finding a balance, and what that balance is for each company. That ratio depends on the type of work that companies do."

Let employees carve out their own space.

By day, Alexa Baggio works in sales at a New York City-based start-up. At night, she's the founder and editor in chief of The Roger, a quarterly magazine devoted to exploring creative workspaces.

"I had this love for creative spaces, and realized there was no medium that was capturing or giving enough attention to the place we all spend the most time," she says. The Roger was launched eight months ago, and in that time, Baggio has scoured the city for creative offices. But the coolest offices, she says, are not necessarily those that have flashy accoutrements or sweeping views, but those that have spent the time to understand what their employees really want.

"As much as it's important to show off the brand in an office, people want to personalize their space," she says. "It's important to create ways for employees to make space their own without it being a detriment to the company if someone left."

At the same time, when you consider the shift to Wi-Fi and laptops, employees don't need to be tethered to one workstation.

"Wireless technology, and the size of the things we carry around, have a big impact on the build environment," says Kushner. "You don't even need a hard drive. You can virtually be anywhere. It's a huge expense to actually wire everything. Once you free up yourself from wires, you have more of a free-for-all. You don't need as many walls. Once you have no file cabinet, that frees you up a little bit. Once you don't have wires, you're actually free."

3 Themes Of Modern Workplace Design

By Katherine Butler | October 1, 2012 at 1:02 am 

Mentoring, socialization, and technology were themes heard throughout the recent IFMA Workplace Summit discussions at Cornell University. These tangible topics aren’t just taking the place of yesterday’s buzzwords like productivity, innovation, and employee experience – they’re helping companies achieve a successful workplace strategy.

The value of mentoring, socialization, and technology lie in the ability to define them within the framework and context of corporate culture, which may make them easier to harness. On a large scale, it seems that we are no longer only concerning ourselves with the “how” and “why” of the physical workspace, but rather moving into discussions about the impacts and integration of culture and organizational strategy within the workspace.

One question asked at the Summit: How do we measure the outcome of mentoring and what is the impact on space?

I would argue that it’s the single most important quality to obtaining high morale and employee investment – yet it does not need to be measured in the traditional sense.

Mentoring is essential to employee investment; without it, a company cannot attract and retain the talent it needs to find success and profitability. Having a well acclimated employee base that works together will undoubtedly help obtain the elusive “productive workspace” designation.

Equally challenged was the concept of reverse mentoring. Putting young employees in a position to support those with more experience on things they are more knowledgeable about — often coming in the form of technology proficiency — helps give them a sense of purpose and cultural importance within an organization.  This leads to a flatter, less hierarchical organization; the future of the workplace, spatially as well as organizationally.

These types of shifts within the organizational structure affect the overall space distribution. They need to be planned for so that all generations can draw on one another’s experience and knowledge.

Facility managers, clients, and real estate advisors are evolving to a more virtual world. Before being able to work virtually in a successful manner, however, it is crucial to develop a working rapport. Without the initial “get to know you period,” there is no way to graduate to a virtual relationship.

During one of the panel discussions at the IFMA Summit, it was stated that once you know an employee, you can read their body language and tone through the phone. For this reason alone, the physical space cannot be devalued as a conductor for a socialized and congruous workforce.

The effects of decreased face-to-face interaction also need to be considered within the scope of mentoring.  How to integrate new employees is often a challenge that we do not concern ourselves with in the built environment.  It is important for young employees to learn by mirroring experienced employees in day-to-day tasks, external client communications, internal company communications, and organizational behaviors.

Beyond the development of working relationships, there should be more value put on socialization itself in the workplace. Casual conversations around family, activities outside of the office, and general conversation about life beyond the office should be considered real work, as this is the establishment of a relationship and trust among co-workers. In creating space, it should be considered crucial to build space that supports this type of communication which facilitates trust and comfort working with one another.

Intranets, virtual workspaces, smart phones all allow us to work around the clock.  It has commonly been the perception that if you are not in the office you are not working. In reality, we are most likely working more now than ever given the continual connectivity.

The advancements of wireless technology are only at the beginning.  How wireless technology will continue to proliferate and revolutionize the work environment was discussed at the Summit. While we cannot predict the future, being able to support and integrate future technologies in our workspace planning will only increase the longevity of a newly constructed space as these technologies become more commonplace.

At the end of the day, the goal is to serve clients and provide a stimulating work environment that supports employees and their work processes.  The physical workspace is integral to achieving a high rate of success for a company but it cannot support users without a successful organizational culture in place.

When we are advising clients on workplace strategy, it is important to understand what the effects are on the organization as a whole. We cannot work alone in a bubble; bringing in key stakeholders, boards, HR, finance and other various groups can only strengthen the case when attempting to modify, rectify or define organizational culture.

Office Spaces that Reflect Teamwork Mentality

Office Spaces that Reflect Teamwork Mentality

You’ve probably heard (or used) buzzwords to describe today’s office worker — these “communicators” or “collaborators” might work in spaces we design called “huddle rooms” or “team areas.”

But in a world where the design trends are growing toward a consultant-based workforce, where does teamwork fit?

The consequences stemming from a lack of teamwork could be exemplified by the recent collapse of Dewey LeBoeuf. Multiple articles have chronicled the economic mistakes from the initial law firm’s merger five years ago until today.

But what ever happened to businesses running off of teamwork? As one blogger noted about the recent trend of law firm collapse’s:

“What every law firm implosion has shown us is that many partners have joined a firm in order to benefit from the brand strength, but have no interest or incentive in sharing clients or helping the firm as a whole succeed.”  – Timothy Corcoran, Why Big Law Firms Implode

What’s important here is that even some of the most powerful companies in the world with the biggest profits — as well as the most qualified and hardworking employees — need teamwork to exist. Not only does teamwork indicate communication, efficiency, and creative solutions, but in today’s workforce, it’s an unquestionable way of life.

Anat Lechtner, an NYU Stern School of Business professor and consultant herself, recently stated in an article:

“Collaboration now occurs all the time at personal desks and in hallways, or virtually via internet or smart phones, and it’s often spontaneous and informal, rather than planned in advance.” – Anat Lechner, Better Teamwork through Better Workplace Design

Workspaces are beginning to reflect this mentality. Clients are starting to understand that instead of rows of cubicles and a couple conference rooms, they need a variety of different types of spaces to enhance collaboration of all types.

There shouldn’t be any more 10-year-old posters proclaiming “teamwork” and a teamwork day where everyone gets a day off from behind his or her desk. The working force today needs to be in an environment that enhances — not discourages — teamwork.

If one can have the private workspace, the area in their office that they can talk to and/or interact with one other person, and more spaces where they can interact with larger groups. This alone allows more variety of spaces to collaborate.

For example, check out the new headquarters for the Bill and Melinda Gates’ Foundation. It has been described as having, “Chance encounters [that] yield creative energy. And mobility is essential.”

The New York Times columnist goes on to record that 89 percent of the employees “confirmed that the buildings support informal collaboration.”(Lawrence Cheek, In New Office Designs, Room to Roam and to Think)

If one of the most well-known nonprofits in the world is building its headquarters to heavily support a variety of teaming spaces, shouldn’t we all take a look at how our workspaces boost our teamwork?