Attracting tenants to suburban offices: Service is key

On Thursday, September 20, 2018, REjournals hosted the 3rd annual Suburban Office Market Conference, co-hosted by GlenStar Properties. More than 150 industry professionals flocked to the Schaumburg Corporate Center to hear about the latest trends on the office market outside the urban core.

Stevhanie Howard, senior broker at Foresite Realty Partners, emceed the event and provided introductory remarks. The first panel, moderated by Kevin Clifton, executive managing director at Cushman & Wakefield, took a deep dive into the state of the suburban office market, including current investment trends, financing strategies and which areas are most attractive for new development.

Panelists included Michael Klein, principal at GlenStar Properties; Bryan Rosenberg, director at HFF; Michael J. Rolfs, partner at Hamilton Partners; Christine Torres, head of Chicago at WiredScore and Jason Wurtz, executive vice president, office services at NAI Hiffman.

So where is the suburban office market headed? According to Klein, “There is growth in the suburbs, but it rarely gets talked about.” He pointed to Medline Industries as an example. The global medical supply manufacturer and distributor moved into a new, 530,000-square-foot headquarters in Northfield last year.

The “M” word—millennial—was invoked several times as the panelists prognosticated on the suburbs’ future. Wurtz believes that the young generation will move to the suburbs just as their parents did, and companies will have to follow them. Rolfs agreed.

“We’re going to see a bit of a reverse migration as the millennials grow up and get married,” Rolfs said. “Companies follow labor, and we have a great labor pool in the suburbs. Smaller businesses are saying that they don’t need to be downtown anymore.”

Clifton asked the panel if a significantly sized corporation can still move out to suburbs. The speakers were in harmony that they can, noting that the majority of the Chicago metro’s Fortune 500 companies are located in the suburbs.

The 2018 Suburban Office Market Conference was held at the Schaumburg Corporate Center, which GlenStar Properties acquired in 2017 and then refurbished through a $28 million capital improvement program. The updated atrium and amenities are attractive to tenants, but so is the sheer size of the property.

“One of the things we liked about this building is that it’s a million square feet,” Klein said. “You can do a conference center like this. You can do a fitness center. That’s not always possible in the city.”

When it comes to functionally challenged buildings, there are a number of steps that firms can take to get them market ready. Slashing rents, however, doesn’t have as large of an impact as some may think. “I don’t believe that a drop in price creates demand,” Wurtz said. “You need to add technology.”

Connectivity in the workplace has become extremely important to tenants who more and more require a robust technology infrastructure and reliable wireless access.

“Every firm is a tech firm, and if the network goes down, you can’t work,” Torres said. “If your HVAC goes down, you can still work. It may be uncomfortable, but you can still work.”

But for some suburban locations, elevating a Class B or C property is very difficult. While an ever expanding CBD in downtown Chicago can transform a lowly, shuttered factory into a hip loft space, the same potential is rarely present in the suburbs.

“You can’t really repurpose a badly located building in the suburbs,” Rosenberg said. “It has already been chosen by the community as a bad location.”

Even in the suburbs, real estate always boils down to location. Access to Metra or the CTA are always a boon when locating offices. Outside of Cook County, the tax advantage is a huge bonus as well.

The second panel discussion reassessed the suburban workplace, looking for the keys to attract and retain tenants, including amenities, project management technology and innovative design. What are suburban tenants looking for and where are landlords putting money to attract leases?

Moderated by Jonathan Fata, commercial real estate outreach program manager for the ComEd Energy Efficiency Program, the panel featured Rob Lundin, senior managing director at Newmark Knight Frank; Mercedes Merritt, vice president of leasing at BECO South & Midwest; Scott Ohlander, executive vice president at JLL; Neil Pendleton, managing director of asset services at CBRE; Mari Rodriguez, operations manager at DynaCom and Stephen Wright, principal at Wright Heerema Architects.

The must-haves for suburban tenants are very much in line with downtown tenants. They want functional, energetic workspace, but they also want to be able to get out and socialize and conduct business outside the office. Beyond that, property managers have to not only listen to their clients, but track their activity.

“Amenities have to go further. And they aren’t just tangible. For us, it’s really a focus on the management and the experience of those amenities,” said Merritt. “It may be really important to have healthy food options on site, for example. Tenants will say they want salads, but burgers will outpace them every day.”

Regardless of the amenities in a space, it’s not just about checking a box, but the service that comes with those benefits. That means having good personnel taking care of the asset, curb appeal to get prospective tenants to even take a look and a good marketing effort to sell the space.

“The leasing team needs to not just show space but present a product, present the experience,” Ohlander said. “We see that downtown, but not in the suburbs so much.”

In many workplaces, no matter the market, there has been a move away from corner offices and cubicles to open, collaborative spaces. According to Wright, there may be some pushback on that as employees put on headphones to deal with distraction and end up being more cloistered. But they still want an open, light-filled and quasi-industrial feel.

“We’re starting to see a swing back, though maybe not to dedicated privates spaces. A lot of open spaces are looking to partially enclose,” said Wright. “The popular perception among tenants is that revealing ceiling is less expensive and that’s not true. We’ve started doing partial ceilings so we don’t have to redo the mechanical or lighting.”

Downtown, Class A buildings are almost always LEED-certified, but that isn’t always the case in the suburbs. Fata asked the panel if suburban tenants are looking for green or certified space, of if that wasn’t a major concern for them.

“It depends on the dollars you have to spend, and what the existing conditions are,” Pendleton said. “Like ADA years ago, there was an uproar about spending more money. But it just became part of design by standard.”

So where are landlords directing funds in order to attract and retain tenants? Fitness centers, free Wi-Fi, food service and other amenities always appear on tenant surveys. But as other panelists noted, Lundin believes that it goes beyond the physical amenities.

“People want to be in buildings where there’s life, where there’s excitement. You just have to have everything because the competition is fierce,” Lundin said. “What’s important is service from property management. The suburbs are different from downtown; here, the property manager has to know the tenants on a first name basis.” (RE Journals 9.26.18)