Traditional Office Tenants & New Economy Tenants. The Differences are Marked, and the Verdict is Still out Whether the Two Can Coexist Under the Same Roof.
Across North America, and indeed the world, office buildings are quickly filling up with hoodies, t-shirts, jeans, and sneakers. These new casually dressed, often younger, office workers are quickly, and dramatically changing the look and feel of office buildings from Montreal to Miami. Does this really matter, or do we have an impending clash of cultures and ethos that will change the traditional office building as we know it?
In the good old days (which wasn’t that long ago), office buildings were characterized by men and women in their most stylish attire. Men in suits and ties, and women in modern business wear, doing traditional office work. Landlords went out of their way to attract these very stable professional-like tenants into their best buildings. The tone of the building was largely set by this steady stream of largely homogeneous looking business people coming and going from their building. This body of professionals added cachè to the building, and subsequently made it easier to command premium rents. But over the past decade or so, that paradigm has started to shift.
Two things changed, almost simultaneously. Tech tenants, who had long inhabited character, brick and beam space, exhausted the supply of this finite commodity and were forced to consider more traditional modern office buildings. These buildings, mainly in the downtown core, had long been the purview of more traditional office tenants. At the same time, demand from traditional downtown office tenants, mostly financial services companies, lawyers, accountants, and other professionals, began to wane. The transition was initially incremental in nature, but in a rising number of buildings the tenant profile began to skew to the former from the latter at an increasing pace.
So, the question being asked is, can these two disparate groups coexist under the same roof. And for now the verdict is "maybe" and "it depends". There’s no reason why suits and hoodies can’t cohabitate, but there is no questioning substantial business styles exist between the two groups. From having dogs in the office, to bicycles in the elevator, or shorts and sandals in the lobby, for many professionals this change in tone is causing a degree of concern and anxiety. Perhaps there’s a niche for “tech free” buildings, but that would require a very brave landlord indeed.
And that takes us to the landlord's perspective, because while there might be concern over who might be your fellow office neighbour, landlords also face a dilemma. For landlords a buildings’ reputation is one of those intangibles, that once lost, is very difficult to get back. Building owners work very hard to safeguard a buildings’ image, and this intangible can add (or detract) considerable value and is something that owners will go to great lengths to protect. That said, landlords go where the growth is, so if it’s tech, that’s where they’ll go. A dilemma to be sure. No doubt a middle ground will be found, but the transition looks set to be bumpy and not without a detour or two.
And what about the always learned leasing advisor? Real estate service providers such as Cresa are increasingly having to consider how a client may be impacted by a possible change in tenant mix in a building(s) under consideration. How do you counsel a firm of lawyers who want a professional environment, and are strongly averse to a building that may end up feeling like they’re back on campus? Equally, how do you convince a tech tenant to move into a modern office tower and risk losing the edgy, authentic vibe they’ve long used to attract key talent? No easy answer in either scenario. Real estate executives of all stripes will continue to grapple with this issue, but for now, everybody just has to get along (under one roof), and safe to say, this is most definitely "a work in progress".
If you are interested in getting more insights into current leasing dynamics, please reach out to me at rmoore@cresa.com or 604-562-3621.