With the unemployment rate at 4%, employees have choices. And amid the multitude of office revamps these days, such as eliminating company cafeterias to encourage restaurant patronage and one would assume simply walking outside, many companies are taking a cold hard look at just what employees want in office space.
“With unemployment below 4%, companies are focusing on making smart decisions about their space– decisions that keep their employees happy and engaged,” said Revathi Greenwood, Americas head of research at Cushman & Wakefield. “Landlords are playing a critical role as well–ensuring their buildings stay competitive with a good mix of amenities and affordable parking, and of course concessions where necessary to attract top tenants.”
And not surprisingly, Millennials are driving a bulk of those decisions. Now the largest generation in the workforce, Millennials are driving the agendas of how companies operate, what workplaces look like and what technology is expected.
“Young workers are drivers of this focus on amenities and services that integrate work and life,” David C. Smith, vice president, Americas head of occupier research at Cushman & Wakefield, tells GlobeSt.com. “Digitals, the generation after Millennials, who are now entering the workforce, have never known a world without smartphones and technology connectivity. They expect their workplaces to have integrated technology that allows them to work effectively, collaborate easily, and seamlessly bounce between teams and tasks. This includes high-quality WiFi, room booking capabilities, service apps for work and personal needs, and direct connection with maintenance for quick response to service needs. The Bay Area is both the birthplace of technology companies and home to a disproportionately large Millennial/Digital population, so employees will have even greater technology expectations of employers in San Francisco.”
Cushman & Wakefield’s report, Space Matters, explored four areas of importance to today’s tenants and landlords. It analyzed the national trends behind office density, amenities, parking and concessions, and provides market-by-market comparisons of vital benchmarks.
In general, occupiers have been allocating less square footage per employee, but that trend is starting to slow down as businesses grapple with the right balance of personal, private, communal and break space.
Common amenities–such as fitness centers and cost-effective food options–still remain very important. However, there is large opportunity for growth in how technology amenities are leveraged by occupiers and landlords.
The square footage allocated per office worker in San Francisco (221 square feet per employee) has decreased dramatically during the past eight years (-21.6%), which is nearly three times the national average (-8.3%). The decline in San Francisco has been driven by explosive tech industry office employment growth that has far outpaced occupied office inventory growth. San Francisco tech company buildouts typically average between 175 to 200 square feet per employee.
“Venture capital investment in office technology/PropTech has grown four-fold over the past four years,” says Smith. “This is a creating an environment where the supply and demand of various PropTech offerings are increasing dramatically at the same time. And, one of the benefits of technology amenities—unlike physical amenities—is the ability to implement them at any building regardless of location, neighborhood or building class.”
Parking costs are some of the highest in the country and prices have been increasing. In many urban submarkets, parking supply is a challenge. Occupiers are looking at creative options to meet the challenge. San Francisco is one of only two markets where the allocation of parking spots is less than one per 1,000 square feet leased (0.8). Also looming in the future is what impact autonomous vehicles may have on parking demand.
Free rent and tenant improvement allowances increased during the past year, but gains were driven by gateway markets in 2017. Concessions increased 27% in 2017 and are higher in all markets except for Washington, DC and New York. San Francisco concessions are expected to increase slightly in 2018. This trend will spread and some secondary markets will soften as absorption slows down and/or new supply becomes available.