The playbook for speculative office development hasn't changed in years. It centers on quality location, architecture and project amenities; all viewed through the lens of cost to build and projected return on investment. Attention is paid to design details relating to the floor plate, core areas, building systems, project amenities; and, generally, all facets of the core and shell. But the analysis stops at the tenant's front door. At that point, landlords tend to shift their focus to market-based estimates of the total tenant improvement contribution necessary to attract tenants. Today market factors, notably, co-working and prop tech, have emerged that create an expectation among occupiers that their occupancy can ultimately be understood in terms of data. This trend will continue.
Recognizing that their customers increasingly value data and feedback from the built environment, forward-thinking developers and landlords will begin to market their buildings on the basis of impact on productivity ("IOP"). These landlords will express building value in terms of comparative IOP, not rental economics. Space will be a service, complete with technologies that measure performance. Data will be aggregated and fed back to the tenant through a proprietary building portal. IOP landlords will provide detailed information about air quality, temperature, wellness features and other project amenities. Sensors will be built into the space that link to the customer portal and provide real time data on space usage. Periodic assessments will be made to evaluate design performance. To the extent elements of the space are under-performing, the IOP landlord will collaborate with the occupant to solve for better performance. To facilitate periodic design change management, spaces will be constructed with greater flexibility in mind, including movable walls and raised floors. All of this will increase the cost to develop and lease office buildings. Yet IOP landlord returns will be higher as tenants will choose increased employee productivity over lower rental economics, every time. This is true as small percentage increases in employee productivity are worth far more than large percentage decreases in the cost of space.
If you think about it, the office building is among the least evolved asset classes in commercial real estate. Factories, labs, warehouses, apartments and hotels all offer better feedback to owners and users. Co-working, in particular, has given office tenants a taste of space offerings that are designed to more accurately match their space needs. The market has shown that users are willing to pay more for products that better address their need. Layer into this the near-term reality of access to vital data to measure the impact of the built environment on employees, and there's no turning back. Rather than incrementally adjust to changing times, it won't be long before bold landlords bring together all these forces in the form of a truly modern office building. This is the future of office buildings.