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Why companies are flocking to the newest offices.

Demand is rising for high-tech office space that surpass home conveniences.

Companies are flocking to the newest office spaces that can rival what workers have at home and provide experiences worthy of the commute.

Office buildings completed in 2015 or later have registered 51.9 million square feet of net occupancy growth since the beginning of the pandemic, compared to the 147.5 million square feet of office space was vacated during the same time, according to JLL.

The demand is pushing up rents for modern buildings, which tend to offer tech-forward amenities like uber-fast internet and voice-activated meeting rooms.

Buildings completed after 2015 in the U.S. are commanding a 61 percent rent premium and lower vacancy rates relative to older-vintage assets, JLL data show. While new buildings have always cost more to lease, this gap is widening, especially in growing markets like New York, Boston, D.C., Chicago, and Denver.

“In today’s flight for quality, smart office technology is becoming more of an expectation than a luxury,” says David Barnett, Research Work Dynamics Director at JLL.

Pre-pandemic, many corporates loaded their “war for talent” arsenal by leasing wide-open office space in desirable neighborhoods. The buildings they chose were flush with amenities like corporate gyms, bike storage and coffee bars.

Now they’re looking for things like AI technology that understands daily routines and work habits, smart software that predicts energy consumption, and wow-factors like media rooms designed for video calls. Such technologies are set to make office technology superior to what people had at home amid the rise in hybrid work.

“The smoother environment is going to be a big selling point to get people back into the office,” Barnett says. “Many employees like working from home and the flexibility so there has to be a good case for returning to the office. The office must offer the same lifestyle convenience as home.”

The issues.

One part of the problem is the rising requirements for fast internet at a time when the underlying infrastructure remains mostly the same as before.

“Wireless connectivity in office buildings is getting worse and worse, and it will get worse as time goes on,” says JLL’s Technology Infrastructure leader Jason Lund. Much of this, he says, is because of the increased demands of 5G.

Lund says to think about a signal strength like an oasis in a desert. There is this big pool of water, and as more animals come to drink, the faster it dries out. Eventually, it doesn’t meet the capacity of all the animals.

“Tenants are coming into buildings now post COVID-19, and they’re operating very differently than they used to, and it’s putting much greater strain on existing broadcast technologies in buildings,” Lund says. “You have to update and expand the entire system to make it capable of handling all those devises.”

JLL’s research shows the flight to quality is being driven by outsized leasing in new construction.

Although concessions are expected to remain elevated compared to historical norms, JLL expects effective rents to continue to rise in new products, while second-generation assets will need larger concession packages to stay operative.

“There’s real value to investing in smart technology and the infrastructure that supports it,” says Lund. “If you don’t, your building will be last on the office tour, if it’s even on the list at all.”

 

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