As Prices Go Up, Office Space Use Goes Down In War For Talent

Despite rising construction costs and, consequently, rising rents, office users still have an appetite for shiny new space in Atlanta.

But there is a delicate dance to their leasing decisions. Companies are often trading their roomier, older floor plans for open office concepts and gathering spots designed to resemble the interior of a coffee shop — and pack in more workers per square foot.

"It's not your father's office building anymore,” Daniel Corp. Executive Vice President Fred Roddy said.

Roddy is part of a lineup of Atlanta's top commercial real estate professionals for Bisnow's Office of the Future event April 17, where they will touch on topics of design, mixed-use settings and leasing trends.

Companies are continuing to flock into Atlanta's urban core to lease up the city's newest prime space, from NCR's new headquarters and Norfolk Southern's upcoming office tower, both of which are in Midtown, to big brands like Pandora, Google, Starbucks, BlackRock and, most recently, Fleetcor claiming stakes in trophy towers.

These deals are coming as rents are reaching all-time highs, in part reflecting the escalating costs of construction and materials. 

Urban rents today for Class-A office average $34/SF in Atlanta. Ten years ago, that average was $27/SF, according to Transwestern. But that number belies a harsher truth: Rents in the newest towers easily eclipse $40/SF, especially if there is deck parking. Even new suburban offices can see gross rents in the mid- to high $30 range, Roddy said.

Regardless of setting, office buildings need to be designed, at least on the interior, with today's table stakes of lots of shared workspaces, gathering places and a lobby with a hotel-like feel. Even suburban office buildings have to jump into the act to attract tenants.

“With technology, we can work in Starbucks every day, so how do we create a workspace that gets people in every day?” CWC Office Furnishings principal Scott Marshall said. "You create a Starbucks-like work pace. You wouldn't have seen that 15 years ago."

The change has everything to do with what workers wants. As the U.S. experiences an unemployment rate among the lowest in history, companies are grappling with how to lure and retain workers, especially the coveted millennials.

“It's all about recruiting, and usually more so in this phase of the economic cycle where we're approaching full employment,” Highwoods Properties Vice President Jim Bacchetta said. "It's getting harder to recruit people. [Companies] are recognizing more than ever that their real estate can help with retention and [recruitment]."

Companies are splurging on furniture for workers, especially with workstations that can be adjusted for height. Want to stand up and type? Just lift your desk up. It is an investment that was once unheard of for the average office worker, Marshall said. 

“I would say that five years ago, people wouldn't invest in height adjustability. Now it's the norm,” he said. "During the downturn, no one would consider making such an investment."

Extravagances in office design were long reserved for upper-level executives. Now, companies are boasting that their C-suite executives are being placed in open office plans just like everyone else.

Cooper Carry associate principal Scott Fleming said companies will spend dollars on redesigning buildings before they're even out of the ground if a competing developer has already moved forward with a similar design aspect. Buildings have to stand out in a market to attract a young workforce, Fleming said. 

He cited one example of an office developer in Orlando who scrapped a design for an office tower with a rooftop bar because another developer broke ground on a similar concept first. That developer instead revamped the rooftop with not only a bar, but also a coworking lounge and events space in an effort at one-upmanship.

“They wanted to be unique on the skyline,” Fleming said.

To cushion higher rents, companies have been leasing less space than in the past. The average square footage per U.S. office worker has been on a steady decline since the Great Recession. In 2010, companies had an average of 225 SF per employee. By 2017, that average hit 151 SF, according to CoreNet Global.

Open and collaborative workstations can be even smaller, as little as 60 to 80 SF per person for benches and cubicles, according to OfficeFinder.com. But there is a growing backlash to the squeeze-them-in trend, Bacchetta said.

“As rates go up, they get a little more dense in their space, but not to the point where it hinders recruiting. People don't want to feel like sardines. So you can only go so far with the density program,” Bacchetta said. “I'm not saying the pendulum is swinging back, but there are limits to density.”

Hear more from Bacchetta, Fleming and Roddy alongside Atlanta commercial real estate pros New City President Jim Irwin, Hines Senior Managing Director John Heagy, Colliers International Senior Vice President Jodi Selvey and Bridge Commercial Real Estate CEO Jeff Shaw at Atlanta's Office of the Future event, 7:30 a.m., Wednesday, April 17, at Galleria 600 in the Cumberland/Galleria submarket.