Landlord Amenities to Lure Employees Back to Tenants’ Offices

People in the office sector are either getting really nervous or should be considering it.

“We know writ large looking at all kinds of occupiers, occupancy across the country seems to be around 40%, 45%,” Darin Buelow, princi-pal and global lead for location strategy at Deloitte Consulting, says. “If we don’t have a recession, I would not expect that number to move up over the mid-40s very much.” If there is a recession and significant layoffs follow, maybe employees will be worried enough about losing a job that they agree to come in regularly.

But unemployment at the end of 2022 stood at well under 4%, meaning people working in offices might well have other options. Then the question becomes how long companies will retain space they don’t seem to need. As leases come up for renewal, tenants will start making hard decisions.

There may be another answer. Property owners and operators could work with tenants to provide amenities. In fact, many are counting on it. Just one problem: It’s hard to know what will make workers want to return. Or if anything will.

One school of thought says that expecting a magic checklist of features to draw people in probably won’t.

“I think none is the real answer,” says Cherre CEO L.D. Salmanson. “When we have an office and we have all the amenities, my people say I can afford to eat at home.” Unless it’s a tech giant level of accommodation, including things like childcare, he adds. In that case, for many employees all the amenities do is soften resentment somewhat. “If you force me to come in, how dissatisfied I’ll be depends on the amenities.”

And then there are people like Salmanson himself who would rather be in an office. “If you’re predisposed to come into the office, you don’t have to give me a lot,” he says — so long as no one puts him into a cubicle.

But office owners and operators can’t necessarily take such a philosophical approach. If people don’t come back, there are good chances that tenants cut back on space, competition increases for new leases, and NOI and valuations start to tumble. That’s becoming an expensive pass to take in what could become a renter’s market.

“Buildings are competing against one another to gain a competitive edge in the market, and amenities are a key factor for tenants in gauging one building against another,” says Trevor Adler, head of the leasing practice in Stroock & Stroock & Lavan’s New York City office. “They’re just looking at their competitors and saying, ‘This other landlord in the area has these amenities that they’re offering or just put in and what can we do to compete?’ I think a lot of the efforts are keeping up with the Joneses to make sure a landlord’s particular building doesn’t fall behind the pack in terms of being competitive in the marketplace.”

That’s a risky strategy, especially given some of the amenities that are becoming de rigueur can be pricey.

“In-house meals,” says Michael Silver, chairman and managing broker of global real estate occupier service provider Vestian. “You promise your workers free food, they’ll come to the office.” But for how long? Do they get bored with the choices?

How about other things? “Does a gym work? Sometimes it does,” Silver adds. “But a lot of times people would swap the gym inside the office building for being closer to home. Is anything working right now? Not a hundred percent.”

“It’s something we’ve always believed in,” Marx Realty’s CEO, Craig Deitelzweig, says. “It was in effect before the pandemic, and it went from a nice to have to a must have [during the pandemic]. We’re constantly increasing and bettering the amenities. It’s all part of the experi-ence of being in one of our buildings.” They try to bring a hospitality experience to the office, with a doorman at the front, house cars, lounge floors and club floors, gelato machines, bar carts out at 5pm.”

“We know what works because we’ve been operating a business that’s highly amenitized the last six years,” says Steve Mohebi, CEO of CANOPY, a network of premium coworking and shared office spaces. “We believe the ultimate amenity is design. It trumps having the world’s greatest gym, the world’s greatest restaurant. It’s how you feel circulating in your office space. Design has to be inspiring to incentiv-ize people to adopt that, to suffer the brain damage of the commute and adopt that workspace, at least on a partial or hybrid basis.”

“Private outdoor space is also something employers are prioritizing as the demand for it continues to increase,” Mohebi says. “Ours is in-tentionally designed and furnished with premium ergonomic furniture so that you can utilize it productively year-round. Something that’s often overlooked is great seating. Herman Miller is our preference as the premier office furniture purveyor in the world. Investing in more ergonomic and design-forward options can go a long way in making employees more comfortable and further entice them to be in the office.”

At that point, landlords are likely seeing dollar signs spinning past their eyes quickly enough to make them motion sick. Most owners can’t afford to gut and remodel everything.

Some of the more common considerations are food service on site or close in proximity is probably crucial. “We’re seeing people request-ing fitness centers and outdoor leisure space — patios, courtyards,” says Greg Martin, principal and managing director of Avison Young’s Fort Lauderdale office.

The question remains what in particular will help while not breaking the bank. Many tenants will look to landlords to provide bigger- ticket items like conference centers or a cafeteria, if there isn’t one. “If the landlord is providing, it’s not something they need to pay for,” Ashley Dunn, associate principal and director of workplace for Dyer Brown & Associates, tells GlobeSt.com. “They’re saying, ‘Why wouldn’t we share that with other tenants and have someone else to manage that?’”

The strange thing is that when you consider all of this — restaurants or food courts, gyms (and how many people actually used them and then showered at work back in the day), outdoor spaces — the real common denominator is not that all of it is in a building, but that all of it could be in a city center.

“I think that across America, and we’re certainly seeing it in Dallas, leading up to Covid there was an amenity war, where landlords were competing with one another,” says Michael Griffin, a partner at Transwestern. “That was happening before the pandemic, which basically created this world where people figured out that we really could work at home. The amenities started with a deli, then a deli and fitness center, then a deli and fitness center and lounge and conference room. Those are all boxes that need to be checked. But what we’re seeing is that the amenity that employees are appreciating that landlords could amplify is not only what’s in the building but what’s around the building. If you look at this market and which buildings have been the most successful at the highest rental rates, are those that are walka-ble.”

He runs through examples with pictures of some of the hottest office buildings in Dallas and Fort Worth. “If you look at some of the most successful markets, where rents in other parts of the city could be $20 per square foot. Rents here are as high as high $50s. Why is that? This is a sunken freeway that separates downtown Dallas from uptown. They literally built and cantilevered over a five-acre park that has restau-rants and seating and foot trucks.” There are residential areas, stores, and more “in this park-like setting.” A building he points to, just deliv-ered “is 100% leased at outrageous rents.” Other areas are similar. Have walkable places, more than just offices, and the rents go up. “They’re all in these live, work, play environments.”

“I don’t think it’s a coincidence that the highest rents are in buildings that are heavily amenitized,” Griffin adds. “But there are plenty of other buildings in other markets that are heavily amenitized that do not enjoy the rental rates and occupancies of these markets.”

Maybe the difference is simply a bigger sense of community, a recognition that there’s more to life than heading into a building, sitting down in a cubicle, and quietly working away.

Not everything needs to be in one building. “I own a hotel that’s right across the street from a park,” says AmTrust RE president Jonathan Bennett. “I’ve said this on a number of locations to the manager there, that park is our hotel amenity.” All the trails, all the green. And that could be the case for the right office building.

Ultimately, says Jason Aster, managing director of KBA Lease Services, while the amenities are nice and important in their own way, most people can afford to buy their own food or keep a gym membership. “What can you put in an office that I can’t have at home and that I like and makes my experience with work or even life richer?” he asks. Maybe it’s a community that you don’t have around the house. “People will lure people back to the office, not to the amenity itself,” he says.