Pampering Tenants

How does an office building’s amenities attract or retain tenants? That’s the calculation landlords make when upgrading or remodeling their properties, particularly in competitive locations such as the Tri-Cities and the Conejo Valley. While a Keurig machine that brews a hot cup from pods of Starbucks’ Veranda Blend is nice, those perks are just the beginning in today’s market, as the workplace experience has become a high priority for companies and even landlords want to keep staffers happy and office buildings 100-percent leased. In the San Fernando Valley, office amenities tend to come in the form of outdoor seating with tables and free Wi-Fi connectivity that extend the office experience outside. Some complexes have small public parks with barbeques, firepits and flat-screen televisions. “Those kinds of places are becoming more common to attract new companies and to retain corporate entities,” said Craig Cahow, vice president with Daum Commercial Real Estate based at the firm’s Woodland Hills offices. The main reasons tenants cite for paying for these amenities is to attract employees. “Creating an environment in which you can attract and retain top talent has been taken to heart by many landlords,” said CBRE Group Inc. Senior Vice President Natalie Bazarevitsch in Glendale. “Talent is the most valuable asset.” While the trend started with small tech firms, it has affected more traditional office dwellers, from real estate agencies to lawyers. At Gelb Group in Woodland Hills, the real estate developer’s recently renovated offices come with stocked kitchen and personal chef. Bazarevitsch points to San Diego real estate firm Cruzan, which just purchased 505 N. Brand Blvd. in Glendale, a 308,075 square-foot, class A office building created in 1987 which Clarion had listed a couple of years ago. “They’ve got these great plans,” Bazarevitsch said of the building, where law firms such as Knapp Peterson & Clarke and Bright & Brown, and various financial services currently comprise the 33 tenants. “They want to create something really special. It’s not just the interiors – it’s the exterior, the skin. There’s a lot of things to evaluate.” Environmental work space If expectations for amenities have reached absurd expectations, blame the tech industry. As endlessly satirized on the HBO comedy series “Silicon Valley,” Northern California’s technology hub has been the incubator for this type of workplace culture, with social media and search engine companies such as Facebook Inc., Google and Yahoo Inc. blurring the line between office and college, work and recreation. With the recent rise of co-working companies such as WeWork, the dorm-like atmosphere has spread beyond Silicon Valley offices in major cities worldwide. Flexible workplace complexes with front-loaded common areas, such as the like found at Regus Westlake Village and Office Evolution Westlake Village (both located on Russell Ranch Road), have contributed to normalizing extras at the workplace. At WeWorks Burbank, four floors of aesthetically contemporary common areas feature such niceties as unlimited coffee and kombucha (maintained by WeWork staff), craft beer taps, ping pong and board games, in-house seminars and socials, and even a DJ in the lobby curating tunes on a MacBook. “We’re so lucky we found it,” WeWork Burbank tenant Steven Kao, founder of Zynovo Solutions Inc., a digital commerce agency that helps merchants facilitate e-commerce on websites, told the Business Journal in August. Kao explained that not only does his small staff appreciate the amenities and contemporary break areas, but when business professionals, whether the be locals or from East Asia, visit his office building, they are impressed with the environment and amenities, as well as the area’s restaurant choices. “Our clients, they’re like, ‘Wow,’” Kao said. Bazarevitsch at CBRE called the office building amenities trend a matter of “generational aspects and expectations.” The rise of co-working since WeWork’s 2012 debut in New York, along with other co-working landlords such as Regus and Barrister, has advanced and made sexy the type of office concepts that they deliver. “It has definitely had an impact,” Bazarevitsch said of amenity-laden co-working environments. “They have almost been conditioned to expect it.” As a result, other landlords have buildings with conference centers, walk paths, fitness facilities and exterior seating. “It’s almost been transformational,” Bazarevitsch said. “Landlords are purchasing buildings and almost immediately trying to enhance the building to attract the best tenants. It’s no longer commodity space where you’re looking at four walls.” West Valley impact In areas known for a more traditional and conservative corporate culture, such as Westlake Village and Warner Center, amenities have not been as hotly coveted. There are exceptions naturally, including CBRE’s young Woodland Hills office, which came in last year with a remodel the main offices out of a converted former Kate Mantilini restaurant space. “We love it, we absolutely love it,” Bazarevitsch said of the glassy, borderline-avant-garde office space, dominated by a central open floorplan. “Every new owner thinks they’ve got the better idea,” she said. “There’s a bit of an art and a science to what is the right mix.” CBRE’s Valley-side headquarters in Glendale is housed within a 1928 building – once a Masonic temple – at 234 S. Brand Blvd., which developer Rick Caruso acquired a few years ago. His firm overhauled the 10-story, 59,492 square-foot building into a chic office structure replete with conference and fitness centers, valet and concierge services, and activated exterior. “Ours is on steroids,” Bazarevitsch said of her home base. “A lot of tenants appreciate if it’s done tastefully,” she continued of such modern fare. “There’s a disconnect if the space is too open.” “There’s a variety of reasons why were’ seeing more and more office product,” explained Cahow, who singles out Sherman Oaks and the Conejo Valley as being the hot spots for certain office amenities this side of Mulholland Drive. In these communities, Cahow believes that the office amenities are not as direct the result of co-working facilities as it is being spurred on by L.A.’s Westside. Cahow said one of the drivers of the current office amenities trend has to do with the country’s current economic prosperity. “I don’t recall seeing (unemployment rates) as low as they are now,” he said. “As a consequence, (landlords) are going to do anything they can.” The end game, he said, for a landlord is to “provide a work environment that is better than most competitors.” Millennial mindset Both Daum’s Cahow and CBRE’s Bazarevitsch believe that young talent populating newer companies play a role in this trend. “The younger set of employees stay on site, they work flex work hours so they enjoy the outdoor amenities, as opposed to special services,” Cahow said. It all comes down to “what is the culture of the firm,” Bazarevitsch said. “Co-working satisfies things for a tenant flexibility technologically sound checks the box in all cylinders.” Cahow would never want to speak for companies such as WeWork, but his guess as to why the co-working company, which occupies four stories at 3900 W. Alameda Ave., has yet to plant a flag at Warner Center, has to do with the general older-skewing age and business genres operating out of Woodland Hills. “The demographics are just a bit different than West L.A.,” he said. “There are technology companies in Woodland Hills, but you see more traditional types of employees including a huge population of employees in the health industry. Much of the office amenities being installed and implanted at office buildings are youth-driven. “Parts of Burbank, certainly the entertainment area – are more parallel with the employee mix on the Westside,” he said. Yet a few miles west in the more conservative Warner Center, where businesses lean toward the traditional and families frequent the three Westfield malls, there is “not a heavy enough concentration of collaborative workplace types,” Cahow continued. “I’m not sure the tenant or business demographic (will support it).” That said, there has been a shift in the corporate culture of Woodland Hills, Cahow observed. “Before it was suits and ties, now more inclined to look like anybody else,” he said. And he is quick to add that, with hundreds of multifamily units currently under construction in Woodland Hills, the culture could shift millennial. “I think it will (change soon). Those types of residents that they will cater to will be the younger generation that will seek that type of environment,” he said. Amenities as deal-breaker? Ultimately, Cahow explained that it is hard to quantify whether a building’s amenities become a deciding factor in sealing a company’s lease commitment. “It’s one of those things where you can’t over-guess which element of a project will put it over the top to be there or not be there,” he said. And Bazarevitsch suggested that there are signs that such fervor for favors may be leveling off. “Definitely, there was this movement towards it but … I’m now starting to see the pendulum shifting maybe too far in terms of tenants’ space needs,” she said. “People want more traditional office space.” In some cases, Cahow said, the amenities may be overrated and underutilized. Despite the low unemployment figures in recent years, “there has not been a corresponding increase in occupancy” at amenity-rich buildings, he said. “With the weather in this part of Southern California getting too hot, outdoor amenities are not being utilized.” If companies and REITs buy office buildings and embellish them in order to turnaround and sell the buildings, Cahow said that is not a common strategy. “I haven’t seen an owner wanting to enhance a project that they’re looking to sell but we are seeing it from new ownerships — to upgrade the environment. They’re all looking to justify what they’re paying (to purchase the building),” he said. At the Harbor Associates-owned 700 N. Central Ave. in Glendale — 136,253 square-feet of space with anchor tenants Fuse Media and Gamblit Gaming — Bazarevitsch said, “(Harbor’s) plan is not to go crazy and do a Disneyland type of building. They want to have functional space for their tenants that meets their space needs.” One of the transactions that Cahow participated in involved Westlake Park Place at 3043-3075 Townsgate Road in Westlake Village, now home to financial services businesses such as wealth managers and mortgage brokerage firms. After the three buildings were completed, a customized outdoor area was created. “We talked about the amenities and everyone was excited, to some degree, that it was coming,” he said. “But did they) make their decision (to sign leases) based on that? I couldn’t tell you.”