Leasing Demands: What’s Driving Today’s Work & Retail Spaces

By Dennis Kaiser

Significant shifts are occurring in the workplace and retail sectors that are creating opportunities for landlords. And they are responding by creating an array of new environments that often blend a mix of uses into a dynamic experience that works to attract and retain employees or pull-in customers.

The evolution of office and retail spaces, from a leasing perspective, took center stage at Connect Orange County last week. More than 450 attendees at the Balboa Bay Club in Newport Beach heard a deep-dive discussion from a panel entitled Leasing Demands: What’s Driving Today’s Work & Retail Spaces.

Panelists included (pictured above from L to R):

– Cox, Castle, & Nicholson’s David Wensley (moderator)
– Voit Real Estate Services’ Eric Hinkelman
– Equity Office’s Rich McEvoy
– Retail Design Collaborative’s Mitra Esfandiari
– DJM Capital Partners’ Stenn G. Parton

Here are the key takeaways from that conversation:

Retail Design Collaborative’s Mitra Esfandiari says retail has bled into adjacent uses, requiring architects and planners to create comprehensive solutions that bring authenticity and experiences in response to e-commerce and Millennials. She says, “because they are asking for those attributes, we have to provide them.” That may encompass small changes like adding reclining seats in theaters, which has helped increased sales for theater operators, or introducing food halls, curated retail offerings and chef-driven experiences. Those have proven successful in bringing in customers, even though a center may be giving up square footage for leasing, she notes. It is all about one common thing today, Esfandiari says, retail “wants to be a mix of uses from residential, entertainment, hospitality, etc. in order to bring in people.” Parking fields are being converted to other uses.

Voit Real Estate Services’ Eric Hinkelman notes the industrial market is setting price per square foot records in Orange County, and is “crazy, crazy hot. We don’t have buildings to fill the requirements.” He also notes the tenant base in Orange County has diversified away from the mortgage business.

Equity Office’s Rich McEvoy says there’s been a shift toward “cultural experiences and service-oriented” environments that goes way beyond outdoor seating. In fact, that transformation has led to an “outdoor space arms race in Orange County, to see who can create the best environment.” The business community has evolved and even traditional occupiers like engineers, accountants and attorneys are creative office tenants these days. That’s because there’s been a “cultural shift” overall in the market, and workplaces are merely reflections of what employees prefer. Employers, seeking to recruit and retain employees, must offer an office environment that helps to create better work life balances for people. But the trend toward creative office environments isn’t confined to just the Orange County market. Savvy owners are looking for ways to use space differently, such as converting lobbies to lounges with a bar, or adding an extreme bike storage space in a basement in an effort to make the space productive and useful.

Cox, Castle, & Nicholson’s David Wensley notes the shift towards creative spaces will continue, since it will be “hard to take away amenities like TV’s and kitchen areas, and go back” to the more traditional office environment. He says if the “office is dark and dingy,” an employee who can work remotely would not be encouraged to come into the office. The desire to encourage collaboration and company camaraderie makes it important to create an office environment that is inviting, and has amenities that mirror what’s found in places employees want to hang out.

DJM Capital Partners’ Stenn G. Parton says it isn’t about convenience in the retail sector. Those who compete on that level today won’t find favor with customers, since they can easily buy anything they want or need online. The focus, he maintains, is on creating “experiences.” Retail centers today must “look like a MXU environment,” Parton said.

That’s why 30% to 40% of space at DJM Capital’s Pacific City in Huntington Beach is devoted to food and beverage users. Parton advocates for a “synergistic” blend between online and brick and mortar, otherwise retailers stand to lose customers. The retail market is a different business model today, he says. Gone are the traditional anchors. They have been replaced by high-end fitness users, food halls or restaurants. Today, he says, the goal isn’t to get the customer in and out quickly, but it is about creating an experience where people want to come and spend time at a center. That’s one reason the retail sector has adopted more of a hospitality type of approach that is focused on delivering a “great guest experience,” and now it is about “how we make them feel when they come to a center.”