Emerging Trends in Office Space Utilization | The Stoler Report-New York's Business Report

Emerging Trends in Office Space Utilization | The Stoler Report-New York's Business Report

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♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: What's really happening in the office market? Are people working? Are they returning to the office? Are they staying home? What -- are they doing co-working? What's hot desks? What about elevators? What about safety precautions? I don't know the answer, but my friend Nadir Settles, who is the executive director for today's show and producer of Nuveen Real Estate, has provided me with two additional individuals to say what's happening in the office market. My guests include Evan Fain, who is the general manager at Industrious. Kevin J. Smith, who is the executive managing director for asset services at Cushman & Wakefield. And last but not least, our friend over

there Nadir Settles, who's the managing director for the New York City operations real estate of Nuveen. So, Mr. Settles, have you been in your office recently or what's the status about you working in your office? >>> Nadir: Our office is fortunately under development, to be able to provide us a best in class office with a bunch of outdoor space, new lobby upgrade. And so we haven't been in our office ‘cause it's close to being in completed and that's going to happen probably around into June, early July. Excited to do that.

>>> Michael: What are you doing in your office? I know that Evan and Kevin are involved with you. Tell me about the project that you working with these individuals in your office and explain to my audience. >>> Nadir: This is a really exciting project because we're bringing together what we think is office of the future.

Operations is no longer about just accounting and sort of doing a lot of the operational work at the property, but now it involves sort of components of hospitality, when you come in those buildings, how the security treats, how security engages with your tenants, how the porters, how engineers walk around. When you talk about from a hospitality perspective, it looks a lot like a hotel and some of the amenities we have and then when you talk about traditional office, it would operate it and be a place of work. So, we've merged sort of, you know, residential hospitality and office altogether. And what that's created is a new identity for what office of the future is. And so, Nuveen first and foremost, from a brand perspective, we want to sort of get closer to our tenants and sort of elevate our brand. It's

about tenant experience, what we're doing. So, you bring in more than just good accounting and sort of dealing with the maintenance and cleaning, but really make sure you focus on your tenants there, you get hospitality and FMB and how that's curated and integrated in a very thoughtful manner with Industrious, how did they use solve for hotelier in you? You said some of these things and flex space, that's also what Industrious is specialist at. Right? So, we want to be a situation where we've created an ecosystem. Every building is not going to have the same comprehensive amenities. We're going to have buildings where we're building a park as an amenity for the community, as well as the tenants, we're building restaurants that are truly for vertical delivery for tenants in the building, as well as for the community to come visit it. But every building is not going to have that. Right? But we will once you're in our ecosystem and your connected the door for technology, we'll be able to send out messaging and say, hey, we're throwing, um -- an event at one of our buildings, let's call it 780 3rd Avenue. We're throwing up a

tenant party. Why don't you come over? And tenants, but then our ecosystem will be able to have access to the ghost kitchens that we'll set up. So, they'll have access to that delivery or whether it's the amenities, because they're in our ecosystem, they'll be able to use it. And then when you start

to look at flexibility from a hotelier model or flex-based model, there'll be also able to do that, because they live in New Jersey and they work in 780 3rd Avenue, to use that building as an example. And what Evan and the Industrious team is going to sort of wire into our infrastructure now, is a way that someone can pick up that app and say, you know what? That building that Nuveen owns in New Jersey is actually very close to my home, I'd love to be able to go there on Monday and Friday, instead of going over to the city. And what they'll do is they'll pick up that app, they'll book this space, it'll be seamless, it will be contactless and it will be easy.

And it'll go and register in that building in New Jersey. So, it's sort of solving for a flexing hotelier. And then this is sensuring that property talent management is managed correctly, again with Kevin, and ESG, making sure that, you know, we feel like that's certainly a part of the fiber of office of tomorrow, making sure that, you know, from everything from an ESG perspective and how you serve the, the compostable stuff from your restaurants or outdoor space and green space and we're doing beehives on roofs and all kinds of different -- We put view glass in a lot of our buildings now. So, all these different things that you can think from a sustainability perspective are truly important. When you bring all that stuff together, that's what we think is a truly a good product -- >>> Michael: The magic potion, as somebody would say, you're putting the magic potion together of all the, okay? >>> Nadir: That's right.

>>> Michael: I want Evan to explain his business, the model on what Industries of today is, in the office of the future. >>> Evan: Yeah, absolutely, Michael. So, for those who don't know Industrious, we're the top rated flexible office and tenant experience provider in the U.S. We operate about 120 locations across 52 cities in the United States, about 13-14 locations here in New York City. We do a few things. We operate our sort of branded Industrious flexible office products. But then what

we also do, which some folks may not know is that we actually provide tenant experience services for all tenants in the building. So, we'll manage the tenant experience programming, we'll manage events, we'll manage the concierge function, the hospitality function that touches all tenants in a building. And from a business model standpoint, you know, our, our business model is based on, on a partnership model mark into the hotel industry, where rather than come in and sign a long-term lease as a tenant in the building and then sort of insert our model, we actually partner directly with the owner to operate on their behalf and to add the flexible office component and tenant experience offering within the, within the building or the, you know, the portfolio of buildings. That's -- >>> Michael: Kevin, let's talk about the C&W involvement. >>> Kevin: Yeah. Sure. >>> Michael: -- services.

>>> Kevin: So, you know, as Nadir laid out, this is a pretty bold vision. It's not something that we see every day. And what we're really going to be doing is as Nadir pointed out, as being the base of operations or the entire, the entirety of this portfolio, which is a pretty wide ranging portfolio and it kind of screams across multiple market. And so as being the service provider for property management services and building operations, in conjunction with Industrious, we are going to be creating this one of a kind tenant experience that to the point -- raised earlier is it's just a consistent tenant first experience across the entire portfolio Nuveen branded and that Nuveen brand obviously resonates across multiple sectors, but this is within the real estate space, this is going to be a first of its kind from an institutional investor, where they're putting a stake in the ground saying tenant experience is really important to us. And we're going to put whether it's the amenities in the right buildings, we're going to, you know, contract for the right services and making sure that it's a seamless operation. Then when you think about what tenants are, are, you know, on top of mind, when they come back to the offices, that some of them obviously have been back, but more and more are people as they come back, they're going to be wanting to have that same experience they have in some ways at home. Which is, you know, convenience, making sure

that all of the amenities are there, making sure the food is there, making sure that the buildings remain healthy and safe, making sure that people know their names when they come into the building. So that this way it's not just, you know, some guards standing behind a desk that doesn't know your name or trying to make an experience that's really tenant friendly. And I think that that's occurred over time. And it's definitely a trend that we've seen over the last four or five years, maybe even going back further. But the reality is, is never, has it been more important to engage directly with your tenants, because as Nadir says, you know, I know from my days of being on the ownership side, the most expensive space to a landlord is vacant space. So, the idea is that to retain those tenants that you have and make your space so attractive, that people are willing to pay up for that space.

>>> Michael: The question today is, what percentage had people returned to work? You know, how many people are going to be back to work? Is Friday going to be a day that's no longer Friday? Friday people work from their homes or they work from the Industrious location at a different idea. Okay? Where do you see the changes? >>> Kevin: What I would say is just right now, we've definitely seen an uptick in the last, you know, let's call it four weeks, five weeks as people are getting vaccinated, we're definitely seeing more of an uptick of people coming back into the office or feeling more comfortable, asking those questions as to when they can come back. So right now, across our portfolio of managed buildings within New York City, we're somewhere in the, you know, 12% range on a good day, bad days, probably more like 7 or 8% in those bad days or more challenging days would be Fridays or Mondays. However, as a backdrop, as a, as a, you know, I was just mentioning, we are starting to see companies asking those questions who haven't been in the office about coming back, wanting to know what the protocols are for coming back. Do they need to be

tested, you know, do they have to have a vaccine card -- things of that nature. So we see the, the momentum is definitely shifting in the direction of having more people being in the office sometime in the summer. And you know, our all, you know, consensus belief is, is that by September, we're expecting to be close to back to pre-COVID levels. That's probably primarily around Tuesday, Wednesday, Thursday. Mondays, and Fridays being the outliers. I would think Fridays to your

question, I think Fridays is going to be one of those days where I think people are gonna choose to either work from home or work from a remote location. Can't say that for sure. But I think in the short term, I think that's the way we see things. And I think that's why as we look at this portfolio with Nuveen or try to create a ecosystem where basically, if somebody wanted to work from their office close to home in Connecticut, that they can utilize this Nuveen portfolio to be able to do that.

>>> Michael: Let's, let's talk about protocols. And then what type of protocols have you put into place? Kevin and Nadir. What type of protocols? You know, people do, they have to get vaccinated. Certain people won't get vaccinated, you know? So, what are the protocols that you're currently doing and what are you planning to do? >>> Evan: From, from the Industrious side, you know, thinking back almost a year ago, right as, you know, offices were closing down, we actually started the, something called WORC, which is the Workplace Operators Readiness Council, which was sort of the, you know, our industries, industry council for sort of leading a safe return to the office. We worked across, you know, all operators worldwide, you know, the big real estate services firms, a number of large landlords that, that sort of helped us out. And we put together a playbook for

basically what a safe returning to the office looks like. I think at this point, you know, those, those protocols have been in place now for close to a year. We feel really confident about them. We feel really proud of how safe our spaces are and we believe that our, you know, that our offices are, you know, the safest space you can be outside the home at this point. And what that looks like Michael, from a protocol standpoint, there's about 127 different protocols. So, I won't walk you through all of them, but it involves architectural changes, it involves, obviously, you know, HAC changes and involves access control. And also really importantly, and

this is an area that, that, that, that we've seen is arguably the most important factor, it involves sort of a behavioral management approach to make sure that not only are people safe, but actually that they feel safe as well. Because even if people are safe, if they don't feel safe, they're not going to come into the office. We've put in place a number of protocols around ensuring that people feel really comfortable in this space day in and day out. >>> Michael: With, with regard to that, how do you get people comfortable with workspaces that are being used by numerous people? Okay? By hoteling, which people have may have not done in years. Okay? How do you, how do you do that? It's nice to talk about the protocols, but how do you actually take care of this? >>> Evan: Yeah, from our side, in terms of the common areas, you know, we've changed how our product actually functions in many common areas. So Industrious, you know, we're

fortunate in the sense that for the most part in our coworking locations, we've never had sort of an open plan model. Everyone's already always had their own offices. So, our, our, our design is actually pretty well set up for the moment at hand. In terms of the shared spaces, the conference room, the telephone booth, some of the shared cafes, that's where having really clear protocols and that behavioral control really comes into, into play. But I think Michael, like the,

the kind of bigger point here is also at a moment in time where people don't necessarily need to come into the office. How do you make them want to come into the office, so that companies can benefit from all the things that we believe can only happen in an immersive environment around collaboration and face-to-face? And that's where, you know, we've been, you know, we we've, we've basically spent not only the past year, but you know, the entirety of our, our, of our, of our history as a business of really thinking about how do you, you know, how do you build community? How do you make sure that those in-person interaction points are happening at the right team -- at the right times across individuals, across teams, across companies, to be able to empower people, to inspire them and to of course, make sure that they feel really -- comfortable, and safe in the office as well? >>> Michael: Kevin, what, what major things have you been doing recently with regard to the protocol, with regard to the vaccines? You know, and then recently I noticed that about 15 companies in New York have been working with the landlords and they've been giving space to be tested. >>> Kevin: Yep. >>> Michael: Okay? Who's paying for the testing? Is the individual paying for it? Is the company paying? What about that? >>> Kevin: Yeah. I mean, I think it runs the gamut, Michael. I

think some companies are obviously trying to encourage people to come back to the office to get tested more frequently for those jobs that are obviously more suited for in-person. So, I think companies are, are willing to pay that cost. And other cases, I've seen the employees paying for those costs. But you know, I mean, I think when it comes to vaccines, a lot is going to be based upon state and federal guidance. And

if you think back to like where we were last summer, when we were trying to get people to come back to the office last June, you know, we were out in front and Cushman and Wakefield with our six foot office concept, which was developed in conjunction with our partners overseas, who had already returned people back to the office back in Asia and in Eastern Europe and Europe. And so, I think we're going to follow a similar pattern, you know, when it comes to vaccines as well. I mean, I think there's going to have to be guidance coming from the municipalities and local authorities around what can be required and can't be required. I think employers and landlords have been reluctant to take a stance on that, just because of the fact, even Cushman and Wakefield, you know, was encouraging strongly for people to get vaccinated, but you can't mandate it unless it's mandated by, you know, a state or local or federal authority. So, but we do see

that more and more people are wanting to understand protocols around what Evan talked about, what Nadir talked about about, you know, making sure that the environment is as seamless as it can be making sure that cleaning protocols are continuing to stay in placement. One thing that people forget is when you don't have as many people coming into the office, or you have little people coming into the office, things like Legionnaires and things of that nature that you know, are routine for our business of keeping buildings clean, you just need to ensure that you're continuing to keep, you know, water is flowing throughout the building to ensure there's no build up in pipes and things of that nature, but, you know, but I think when it comes to testing and vaccines, you know, I think that there's more to come on, that there hasn't been specific guidance from we expected. I mean, just like last summer we expected guidance come from New York State and that's what most landlords follow. I mean, they follow that. You know, and we have seen, you know, testing centers pop up in office buildings. You know, the partnership for New York has, you know, encourage landlords to, you know, take empty retail space and convert them into testing centers. And that's been

now occurring. There's one right down the street from us here on Sixth Avenue in a, in a, a -- building. So, definitely more to come on that.

>>> Michael: Nadir, this is a question since you are the landlord today. Are people signing leases? You know, I hear from some brokers, business is really slow, you know, part of it is they don't know what's happening. They don't know how many percentage of people returning to. So as a landlord, where do you see the market today? >>> Nadir: I think it's certainly a renewals. It certainly renewals a lead in a way short-term extensions until they figure out sort of what their space requirements, what their space needs are. I think one, one thing that has sort of totally reversed itself is, oh, I can do my whole, my company, we can do all our work from Zoom. I think that has reversed

itself. Right? And so now what we thought may have been a more sluggish recovery is to, for people to start want tour and again, really considering space and in starting to trade paper is actually, probably may have been compressed a little bit. So, we are starting to see tours and tours will lead to people consider and buildings and buildings will lead in that will lead to actual space and people trade paper. So, you know, in, in, in, in the moment right now, and this is looking backwards, it was all about renewals, short-term extensions.

I think looking forward with the vaccine and as Kevin highlighted, there were people that said, I'm not coming back to an office or I'm not coming back till January 1st, 2022. Right? And now they've brought that in and now with that, they're starting to consider, okay, well, if I'm going to have, you know, we're going to spread out a little bit more, so we might need the same amount of space and we may have, you know, it may be a dynamic where there are people that actually do work from home in this people that are permanent in the office. And that is actually net neutral, because people are spread out more and you got more front office people and then maybe you have some back office and accounting folks that just permanently work home. Right? So, they're figuring all that out. And one thing to keep in mind is they want to protect the culture. There are serendipitous moments that happen at work that

don't happen at home and collaboration is important, right? So, they now understand this, people see the light at the end of the tunnel with the vaccine coming. So now it's really all about, okay, well, let's start touring and let's start these conversations. And I think you will start to see more leases signed as we get to the back half of this and more traditional leases in the five to seven year range. Maybe

people don't do 10-year leases. And the more long data, but I think you will start to see a lot more five to seven year leases being signed, call it in the back half of this year. >>> Michael: Evan, are you seeing smaller owners of property following the, the approach that Nuveen is making changes, doing co-working, which was something that they didn't do before they had to coworking is a tenant, now coworking is part of the operation of the building.

>>> Evan: Yeah, Michael, we absolutely are. I mean, I think what we're seeing generally in the market is that, most owners recognize that flexible space, you know, represents a product that is required at the building level in terms of being able to provide building level flexibility, not only to meet sort of immediate, you know, to fill vacant space that they might have and to provide, you know, and to attract a different customer set, but also to potentially land larger, larger tenants that are looking for an ability to flex up and flex down at the building level really seamlessly. So, we're seeing, you know, and it's our belief, certainly that most buildings will have 10 to 15% of total square footage in some type of flexible product, whether they build it on their own, they partner with us or, you know, where they are, they lease, or they do whatever. I think in terms of what we're seeing in the market today, you know, a few, a few trends. Number one, we're seeing small businesses return more quickly than, than sort of larger enterprises. There's less sort of corporate

policies at play and they're sort of, you know, a little bit more agile to be able to make their own decisions. We're seeing the larger companies, sort of enterprise companies, all, you know, basically in the last two or three weeks, sort of get a little bit of a kick in the butt and say, oh wow, this is happening a little bit faster than we thought it was going to happen. And we really need to get, we really need to not only plan to bring people back perhaps sooner than we thought, but we really need to start thinking about how are we going to use the next six, eight, ten months or so to figure out all the complex questions that Nadir just - Right? And I think if there's one sort of global trend that's defining, or I think will define the next few months, it's that employees -- companies are moving in a direction where they are treating the employee as a consumer for the first time. And the employees are in the

driver's seat, not the CFO, not the necessarily the VP of real estate, it's really up to the employees now. And the real estate teams are, are, are needing to be far more responsive and proactive in soliciting that input, that feedback and that data, to be able to figure out what the next phase is going to look like from a workplace strategy perspective. So, the big thing that we're seeing right now, every large company in America right now, for the most part that we're talking to is saying, we don't have the answer yet. And we're saying the same thing we're saying we don't have the answer yet, but what we need to do is figure it out over the next few months. So, let's put in place the right programs, the right pilots, so that we can all build the data to be able to figure out what's real and what's not, and to place our bets over the coming years as far as -- >>> Nadir: And I just want to jump in there just to, ‘cause Evan made an important point I think about the paradigm shifts and sort of the, the model is that it used to be a B to B model, right? You used to be the landlord, you know, discussed and decisions were made at the C suite. And now it's a B to C model, where everything we're doing, we're catering for those employees that want to understand the program and they want to understand your amenities, they want to understand the programming should be, you know, attractive and that's, what's going to drive management decision, because they're gonna say, wow, our employees like this, I mean, we're building out wellness centers, right? Where people can do meditations, they can do naps, other forms of yoga.

Right? That's, that stuff that we think is attractive from a mind body wellness perspective versus a gym. So, we're thinking completely about the end client tenant and that tenant being actual employees versus at a business to business level. And we think that has been a major shift in the model. >>> Michael: I think my Apple over here still a little dull. Okay? I got to shine it a little bit and hopefully, you know, six months from now, the world will be different and all of you will be back. And I'd like to thank, you know, Evan, Kevin, and Nadir for being here. And I'll see you next week.

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2021-04-19 08:23

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