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Are owners gambling too much on millennials?

Basketball courts and Foosball tables will come and go, but demanding tenants are here to stay.

And knowing what they want in terms off office space has put New York City real estate brokers at the forefront of some of the biggest changes in office design since the dot.com era. At an NAIOP panel discussion last month, attendees debated whether the trend of open layout, amenity-rich  office spaces would become less of a draw when millennials began to settle down and develop more responsibilities outside of the work place.

Photo by ITU Pictures/ Flickr
Photo by ITU Pictures/ Flickr

Michael T. Cohen, president of the Tri-State operations for Colliers International, said that landlords betting it all on trendy tenants have nothing to lose.

“We rarely see any more basketball courts, those have come and gone,ˮ said Cohen. “If the foosball table goes out of  style they can ship it down the freight elevator and replace it with a couple of workstations.”

Cohen said that offices that offer amenities will likely be a draw for years to come, regardless of generational shifts.

He said the real issues that landlords and tenants should keep their eyes on are location and infrastrtuce.

“These changes are gradual,” said Cohen of the evolution of the modern office. “I don’t think that we’re going to wake up one morning and see all the millennials living in Westchester, commuting to Grand Central and no longer wanting to work in Brooklyn. For the foreseeable future the millennial population is very bound to the recently-emerged neighborhoods in the city.

“I think the real issue, the bigger question is one of location,” he continued. “Because that’s the one you can’t correct so easily. If all of a sudden no one wants to be on Union Square anymore, you can’t move Union Square. But Union Square being one subway stop from Grand Central will attract millennials.”

Cohen suggested that the city itself must make sure that transportation options throughout the city remain efficient if the region wants to continue enticing new talent at the same rate that it has.

“The city is going to have to get it straight,” said Cohen. “They’re going to have to support this millennial population with modern airports and modern infrastructure.”

“As the West Side becomes more populated and the Hudson Yards, is the city going to provide infrastructure and transportation to support that? The city has to rise to the challenge,” he said.

Mike Nahmias, executive director at Cushman & Wakefield, has been involved in the leasing of over 20 million s/f of office space during his 15 year career in commercial real estate. Specializing as a commercial landlord representative, Nahmias has helped complete over three million s/f in deals at C&W alone since joining the firm in 2007.

“I’m not sure that we’re entirely going to see a shift of people that wants to be home by six o’clock ,” he told Real Estate Weekly, stressing that there was no guarantee that millennials will want to move to the suburbs by the time they get older.

“Urbanization is also happening, lots of people also prefer the urban environment,” he continued, pointing out that older workers are also being drawn to the city when it’s time to downsize their empty nest.

“They’re leaving behind the house in West Chester or Greenwich because they’ve just figured out that it’s a lot more fun to be in the city now that the kids are out of the house.”

“I don’ t know that these amenities  are going to be left behind or that they’re not going to be wanted,” he continued.

Nahmias pointed to the Empire State Building as an example of well-known traditional office space that has opted to modernize much of what it offers.

“Traditional office space doesn’t get any better defined than by something as iconic as the Empire State building,” he said.   “But they’ve really done a great job of repositioning it as a building that tech and creative tenants would be attracted to.”’

Nahmias praised its “extensive amenity package.”

“It is very difficult to attract the top grads today. They are well sought after as they always have been,” said the president of Alliance Consulting, Paul Sorbera. Alliance helps companies fill corporate positions.

“They serve a vital function to corporations that are building and growing. They are the bench strength of the future for many established firms. Many companies want to train and develop their staff and build a corporate culture and not look to hire externally trained people from other corporations as their core.

“The competition now spans many industries,” he continued, pointing to fields such as private equity, technology, social media, and hedge funds.

“Today we find that Millennials and new grads have different goals and objectives than other generations. This generation has grown up in a changing world of technology, information and innovation. They seek the same for their lives and their work. Flexible and creative environments are more appealing and comfortable to them than structured, rigid corporate environments. Open floor plans, glass walls, interactive and engaging environments are more attractive to Millennials.”

“They seek to be involved, contribute ideas, interact and be free to be creative,” he added.  “An environment that creates and invites that type of atmosphere is attractive. To secure the best and the brightest as well as retain and encourage their involvement and contributions, companies are adapting their offices.”

Sean Black, an executive director at Cushman & Wakefield that specializes in representing tech clients agreed with Sorbera’s candor.

“I think at the end of the day having an environment that fosters collaboration is achieved by a sense of openness in the design of the physical environment,” Black told Real Estate Weekly. “In regards to the location, the location of the building becomes an extension of the floor plate.

“Just as it is important to have amenities in the building and in the physical space having them in proximity to the doorstep is just as important to a technology company,” he continued.

Black pointed out that some of his tech clients are in fact 24/7 operations with various workers working different shifts. At these companies, and others that require other substantial amounts of hours from employees, the need for accommodating workspaces is not a trend that will phase out with a generation. According to Black, the evolving modern workspace is more a function of what companies need in order to satisfy all employees for the long haul than simply a gimmick to attract young professionals who grew up expecting a Google-esque atmosphere.

“The ability for someone to work intensely has to be balanced with the ability to break away and have leisure time,” said Black.

“We’ve entered a phase where organizations are more horizontal and more collaborative. The next phase of growth we’re seeing is going from horizontal and collaborative to sharing. The next generation wants to be in a physical environment that has amenities that allow them to have a work-home integration or a live-work integration.

“The physical workspace is much less today than it was in history, because of the cloud and the ability to do mobile commuting.”  Amenity space is not just important after 6 o’clock it’s important all throughout the day. There’s only so much time someone can stay in a tight physical area without breaking away,” Black added.

“The evolution of the office has really begun and it has been fostered by the techno-class. You’re seeing larger companies today having to compete for the same talent. If you look at the amount of millennials that are in the workforce today, those are the people that technology companies have to recruit but the large firms need to recruit them as well. The large firms have to create a physical environment that’s going to create a demand.”

With the amount of hours I work, I would like to work more, literally,” said Dustin, a tech professional in his mid-twenties who echoed Black’s thoughts. “ I feel like none of us have reached that pinnacle of where our true passion and jobs are truly combine. So in the coming years I hope to be working more, way more, because I’ll be hopefully at that job where my ideals of passion, creativity and enriching lives becomes intertwined with my lifestyle and blends with my work life balance.

It would seem that many landlords would concur with Black and Dustin.

“Some landlords are pulling back on ‘non-traditional’ leasehold improvements which were aimed at attracting millennial tenants,” Jonathan Wasserstrum, CEO of TheSquareFoot told Real Estate Weekly. TheSquareFoot specializes in placing smaller companies such as startups in open floor plan type spaces. “Many landlords, however, are still adjusting spaces to fit these trends seeing them as a necessary strategy for acquiring new tenants.

“While recognizing the cyclical nature of office layout trends, landlords will always cater to the desires of the next generation,” he continued.

“In recent years, there’s been a movement away from the closed offices and cubicles that tenants desired in the past. Owners will often make modification to a space for a ten-year lease, made to accommodate the duration of a particular trend and then prepare to re-adjust to changing needs as they occur. In order to meet their customer’s demands, industries like fashion, architecture and consumer products are constantly adapting to current trends without worrying about what the next trend may or may not be. Commercial real estate is no different.”

In accordance with what Nahmias said, Wasserstrum emphasized that employeers are not exclusively marketing to millennials, and thus even if the 25-year old’s of today eventually want to settle down and have children to rush home to, there will be someone else enjoying the modern office space in their stead.

“The current generation of workers, not just millennials, desire an open and airy space that encourages collaboration and communication, so that’s what landlords are delivering,” he said.

But even if the open spaces and the amenities become outdated themselves, landlords and tenants are not painting themselves into a corner.

“If the next group wants to revert to cubicles and closed-space offices, or an entirely new layout, that’s what owners will provide,” Wasserstrum said.

Such a change could be a distinct possibility, Wasserstrum admitted.

“There are downsides to bending to the whim of spatial trends. For example, open offices notoriously lack privacy and can create distractions for workers. As a result, there’s recently been a shift in demand toward an open space office with at least one conference room and a few “breakout rooms”, which can also function as conference rooms, call rooms and meeting rooms.”

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