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Office landlords woo tenants with luxe amenities

Commercial towers in the US are dangling value-added services such as pool tables, craft beer and sleep pods

A cafeteria space in a New York office building. Hoping to lure tenants in a sluggish market, commercial towers are adding amenities often associated with luxury apartment living.

New York

NOT many people can get away with sleeping on the job. Tishman Speyer, one of New York's largest commercial landlords, wants to change that.

Last year, the company introduced Zo, a programme to expand the perks offered to its tenants, including nap rooms at Rockefeller Center.

"Please associate me with sleeping on the job," said E B Kelly, a managing director at Tishman Speyer who oversees the effort.

Hoping to lure new tenants in a sluggish market, commercial towers across the country are dangling amenities often associated with luxury apartment living, such as pool tables, craft beer and golf simulators.

"The trend is as much about an integration of work and life as it is a balance of them," said David Moore, a senior vice-president with EQ Office, a landlord that has converted underused office space at Willis Tower in Chicago into several floors of stylish lounges.

Offered in those lounges, whose decor includes exposed bricks and beams that are unexpected in a 1970s-era skyscraper, are table tennis, coffee stations and a cocktail bar that opens at 2 pm.

The perks are a US$50 million piece of a US$500 million makeover of the building, formerly known as the Sears Tower.

Landlords in Chicago and other major cities are feeling the pressure of stubbornly high vacancy rates. In the third quarter, the rate stood at 16.6 per cent across the US, which is high compared with the last decade and a slight uptick over the past couple of years, according to Reis, a real estate data company.

Shared-office providers like WeWork, whose casual and whimsical environments feed their popularity, are adding to the squeeze, brokers say.

"I don't see how they can't," said A Mitti Liebersohn, the president of the New York office for Avison Young, a commercial real estate service provider. "Every day, you are hearing about another co-working company and the amount of space they are taking."

The growth in shared workspaces is propelled in part by tenants interested in more collaborative work environments but also in smaller footprints and cost savings.

As bench seating replaces cubicles and corner offices, the amount of square footage per worker has shrivelled.

But it is not clear that small and less-capitalised tenants are willing to pay more for the extra space that table tennis and other extras require, brokers and owners say.

In those cases, landlords provide space for those amenities instead, which can be a powerful recruiting tool for tenants, and this is a clear advantage, Mr Moore said.

At Willis, Chicago's tallest building at 110 storeys, the renovation may be paying off. In 2015, when EQ, a division of the private equity firm Blackstone Group, purchased Willis, its occupancy rate was 80 per cent. Today, it is 95 per cent, Mr Moore said.

Similarly, he added, asking rents of US$20 per square foot have climbed to the US$35 mark.

For employers unable or unwilling to increase workers' pay, amenities might also provide a sort of consolation prize, economists say.

Wages have grown slowly since the 2008 financial crisis, and inflation has offset gains in recent months. To lure workers, companies are shifting towards non-wage compensation, offering better benefits and perks.

Landlords are getting into the game. Last year, the owner of 1735 Market St in Philadelphia cut the ribbon on a 20,000-square-foot amenity floor that features a tabletop shuffleboard game, gas fireplaces and 18 wine lockers, plus a conference centre lined with tables and screens.

Previously, the floor contained a cafeteria and a data processing centre used exclusively by a bank, according to Equity Commonwealth, the owner of the property, which added that the building was 91 per cent leased.

In the past, if cafeterias existed at all, they were often the walled-off domain of just a single tenant, according to brokers.

Tenant-provided perks are still common outside major cities, they say, especially in lower-density, office-park-type settings like in Silicon Valley, though single-tenant complexes are often the norm there anyway.

But in New York, barriers are being breached, like at 4 Times Square in Manhattan, where, for years, only employees of the magazine publisher Condé Nast could grab lunch at the chic cafeteria designed by the architect Frank Gehry.

Since Condé Nast packed its bags in 2014, the Durst Organization, which owns the building, now called One Five One, has undertaken a US$150 million renovation.

Included are US$37 million for amenities, like modernising the cafeteria, which is now open to the entire 47-storey building.

Plus, a circular area behind the Nasdaq digital ticker that once housed ventilation equipment has become a spacious lounge that serves cappuccinos in the morning and craft beer in the afternoon.

Martini lunches may have fallen from favour, but brokers say some landlords believe that adult beverages poured during office hours can charm tenants that might otherwise opt for co-working spaces, which often have kegs on hand.

It is unclear, though, if landlords can play the role of bartender. In California, WeWork shut off its beer taps this year over concerns it was not properly licenced.

Wrapping the perimeter of the Durst lounge is a "living wall", a lush array of 2,200 ferns and other plants.

Similar walls are becoming darlings of office designers looking to jazz up common areas. Nearby is a black-felt pool table, plus a pair of swings large enough for adults to curl up in.

An interest in healthy employees seems to be motivating developers. At 40 10th Avenue, a prismatic new office building in Manhattan's meatpacking district, those who commute to work on two wheels have a place to stash their bikes, courtesy of a dedicated basement room.

Bike storage is not unusual. In 2009, New York passed a zoning amendment requiring all new office buildings to offer some parking.

But 40 10th Ave, from Aurora Capital Associates and William Gottlieb Real Estate, also offers adjacent locker rooms with showers to freshen up after a long ride.

In San Francisco, if muscles are knotted, workers can stop for a massage at tables set up in the airy lobby of 1 Bush Street, a property owned by Tishman Speyer.

The back rubs are coordinated through Zo, Tishman's intra-portfolio concierge service, which also helps find babysitters, book manicures and plan trips.

Not all in the latest package of amenities are tactile: Property owners are also dangling flower arrangements for employees out sick, discounts at local shops and private medical clinics.

With Zo, doing nothing is also an option. At some Tishman buildings, like Rockefeller Center, which NBC, Deloitte and Simon & Schuster call home, enrolment with the programme grants access to quiet rooms where naps are encouraged.

Stressed-out Zo members can slip into one of three long "pods", which have pillows and eye masks, and catch 30 minutes of sleep for US$5.

Ms Kelly, the Tishman managing director, said: "It's been terrific," adding that Tishman tenants logged about 2,000 naps from July 2017 to July 2018 at Zo facilities in New York. NYTIMES

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