Project515 panelists discuss the current office market

Business leaders who occupy offices are looking for ways to bring workers back to the workplace if not full-time, then two or more days a week.

To do this, they need an inviting and user-friendly office space, said panelists in Business Record’s Project515 virtual discussion on the office sector.

“Before the pandemic, there was this whole idea … that entrances to buildings were guest-friendly,” Todd Garner, director of Substance Architecture, said at the Aug. 25 event. “Now it’s ‘How do you respond to your employees.’ … Companies want to give employees a reason to come back to the office.

Companies are approaching the problem in different ways. Some have added rooftop terraces, others large collaborative spaces equipped with state-of-the-art technology. Some add cafes, workout areas, and spaces with outdoor views.

A decade ago, when companies added fitness spaces, the spaces were in basements.

“That’s no longer the case,” said Justin Lossner, general manager of JLL’s Des Moines office. “If you’re in a skyscraper, your fitness center should be at the top of the building. He must have a first-rate view.

Here are the highlights of the office market discussion.

A lot of office space was lost during the Great Recession which happened in 2008-09. What triggered the return of the office sector?

Ruprecht: The office market depends a lot on the economy and how it is doing. Jobs are a very big part of that. I think as the economy got better [after the Great Recession], businesses were more profitable, incomes increased, jobs were created. When we look at where we are today, it is important to have some stability in our economy and our skills. We’re seeing people now signing longer-term leases, and that gives you an idea that there’s more [economic] stability. In case of uncertainty, real estate decisions [regarding] Office spaces are certainly made differently, especially if you have a looming recession. … Our economy must continue to grow for office demand to return.

JLL recently released its second quarter report on the Greater Des Moines area office sector. Lossner shared some of the report’s highlights.

Lossner: If you look at our report it says the vacancy rate is 11.6% [in the Des Moines area]. Who tracks all goods [including owner-occupied, which] skew these numbers. If you really want to know more about what the real vacancy is, take [out the owner-occupied properties] and what you’re left with is about 22% vacancy for downtown. Interestingly enough, it’s always been about that. …So while it looks like there are a lot more vacancies, it’s pretty similar to what we’ve seen in some of the peaks and valleys. West Des Moines, to me, is truly an eye opener. Again… take out owner-occupied properties and you’re closer to 17% [vacancy rate] in the West. Two years ago it was 10%. West Des Moines definitely felt pain.

The other takeaway is that if you look at the number of leases that have been signed in the last 12 months, about 80% of the activity is in West Des Moines. Thus, downtown is experiencing a much slower speed than West Des Moines over the past two years.

Which industries rent space?

Lossner: Law firms are extremely active at the moment. The same goes for counseling and therapy. We’ve done more behavioral counseling therapy deals in the past 12 months than I’ve probably done in five years combined. … Financial services have been quite active. … [Businesses] who are in a dated space or need to be refreshed are coming to market and trying to target a class A space with amenities [like] conference rooms, training rooms, fitness centers.

What does McGough see happening in the office sector nationally or in the Midwest?

McIntosh: That’s a wide range of answers. In Minneapolis, where I am, we have a much bumpier road back to the office. I think that’s partly because we weren’t just dealing with the pandemic but… a lot of public safety issues. This created additional difficulties in determining how and when to return to the office. McGough delivered, as general contractor, a new town center [Minneapolis] tour earlier this year. … We currently only have one other office building under construction in downtown Minneapolis. … In some of the other markets in which we are active, there is a lot of activity. In many cases, these are either company-owned facilities making modifications, renovations and upgrades to or adding to their existing space…to create what they need for the way people work in the workplace. environment today. We have a few of our markets where it’s much quieter and there’s still not the confidence to spend money until there’s more clarity on how their businesses or their staff will use this space.

How do hybrid work arrangements affect the design of office spaces today?

Collect: There is definitely a change from pre-pandemic workspace layouts. What we hear from our customers is that [workers] want to be together. When in a collaborative, open work environment, cubicle walls collapse and there is more collaborative furniture, such as standing desks. …As we respond to these collaborative work environments, there is also a strong demand and need for purpose-built workspaces – what we once called private offices or breakout rooms are becoming more and more critical. These should be designed to be super quiet when the doors are closed. …Each of these chat rooms also has ubiquitous technology: wireless has to work well, TVs on the wall, cameras. Everything has to be together to work or the staff just won’t use it.

What about amenities?

Collect: You start seeing customers asking what the neighborhood is like, what amenities are in the neighborhood. Is there a café nearby ? Are there any good restaurants ? Is there a shared space?

What are the prospects for new office development in the Des Moines area over the next 12-18 months?

Nicholas: I am eternally optimistic. … It just needs to be the right product. Any very, very large spec office is probably going to struggle, but there’s definitely room for an office building that has a secure tenant [with spaces for other tenants]. It must have amenity space that allows tenant flexibility. There are people looking for space – there are small users, there are average users. We’re going to have larger users who can’t fit into the footprint of some of these large vacant office buildings that are going to be looking for space. The city center is in good health, as are some suburban centers. I think we will continue to bring out new desktop products.

Jose C. Birney