You are here

Developers Expect Office Stock To Change Look in Next 4 Years

December 16, 2001

By Neil Weilheimer, Senior Associate Editor

Although typically it takes several years for design shifts to show up in a building cycle, threat of terrorist attacks, biological contaminants wafting through ventilation systems and other repercussions of war are already beginning to factor into how developers put up office buildings. Responding to concerns of corporate tenants, office developers are taking into consideration a building's structural vulnerability, accessibility and ease of evacuation. And just when attention was moving away from the suburbs back toward urban development, corporations are reconsidering campuses, which typically include shorter, wider buildings—good for spreading out executives as well as situating back-office operations.

Nelson Algaze, an architect, is currently designing a building for a client in California. But the user is demanding design features different from ones he was working on four months ago. Algaze says this client's biggest concern is now safety. "Security issues were always out there but were always an afterthought," he said. "Security was never addressed. Now it is." As a result, the plans are now heavily focused on creating a building equipped with an internal wiring systemthat eliminates lock-and-key entry methods by requiring tenants to swipe identification badges to move through the building.

"We're putting in locking systems with built-in intelligence, to tell you who's going in and out, with (a notation of) the time," said Algaze, a principal with Shlemmer + Kamus + Algaze, Interiors & Architecture Inc., a firm that plans 12 million square feet of space a year. "It gives security a better picture of who used the building and when."

Likewise, Algaze said he is being asked to find ways to limit access to the building. In the future, he said, buildings will have fewer entrances and the security desks will be better positioned. "We're looking to funnel people through controlled access points."

Developers said they, too, are receiving calls about making sure the buildings they are working on will better manage the flow of workers and visitors.

As a result, security costs are expected to soar all around. Tom Walsh, president of Gale & Wentworth Construction Services L.L.C., estimates that costs for building security will surge from between 25 and 50 cents per square foot to between $1 and $2 per square foot, although much of the cost comes from adding extra security guards, not from new systems put in during development.

Higher-security layouts are just part of the new approach to construction. An impact like the ones that destroyed the 110-story Twin Towers is the most difficult to protect against.

"To guard against a multi-ton explosive, self-guided missile delivered at a high speed, to the point of maximum damage—I'm not sure there are structural solutions," said Jonathan Green, president & CEO of Rockefeller Group Development Corp.

But developers and designers are considering possibilities. One change is that buildings are now going to be put up to withstand greater lateral impacts, said Dennis Katovsich, senior vice president of McCarthy Building Cos. "Designers, structural engineers will take lateral loads, side loads, into consideration more on high-rise buildings."

When a building is erected, developers and engineers typically determine the property's ability to withstand any outside forces, known as loading. In Florida, for instance, buildings are made to endure hurricanes and strong winds. Likewise, structures in California are built to face earthquakes. And in New York City and Chicago, the skyscrapers are designed to sustain heavy winds.

Katovsich speculated that going forward developers would pay more attention to the frames used in buildings. He said that most buildings are constructed with an internal cross-bracing system that solidifies its structure and makes sure the foundation of the building is not just at the bottom.

Developers say tenants also want shatterproof glass to insulate workers in the event of an object smashing into the window. And while newer buildings have featured windows that do not open to help maintain air quality, tenants with build-to-suit plans are expressing interest in installing windows that open to allow emergency access or egress.

Industry players do not believe the need for such escape methods is great, as they do not view a repeat of what happened to the Twin Towers as likely. Given other recent scares, however, they do advise more attention paid to other aspects of a building. "It's sensible for somebody building a building to think about their environmental control system, to think about their environmental security," said Bob Baker, chairman & CEO of BBJ Environmental Solutions Inc., which has been kept busy recommending ways to protect against anthrax and other bioterrorist attacks.

"Every commercial building has outside vents where you bring in air from the outside," said Baker. "And in most buildings those are at street level. There's opportunity for mischief there."

Baker said developers must begin putting filtration systems in inaccessible locations. That will not only avoid tampering but will prevent exhaust fumes from entering the building.

Return of Suburban?

Low-rise projects were already in favor, mostly because more construction has taken place in suburbia. With construction down generally at this point in the economic cycle, the attack on the Twin Towers is only likely to intensify the preference for low-rise buildings, believes Stan Wendzel, senior vice president of Lowe Corporate Development Services, which has about $350 million of development under way.

"Not many super-high-rise buildings will be built right away. Maybe in the future, but not right away," agreed Katovsich. "For brokers to get tenants into the coveted high-rises, it is going to be more difficult than it had been before Sept. 11."

Stuart Gabriel, director of the Lusk Center for Real Estate at the University of Southern California, likewise believes low-profile buildings will become more fashionable for the near term. "People are going to be careful in choosing trophy buildings," he said.

With the economy trending down, they were already beginning to favor buildings of slightly lower quality, according to Richard Previdi, CEO of WP Commercial L.L.C. For that reason, he anticipates more developers wanting to build that type of space. "If 50 percent of the demand in the office market is for Class A and 50 percent Class B-plus, going forward 25 percent of the buildings will be for Class A, 75 percent will be for B-plus quality space."

Even in cities where taller buildings are the norm, the height of new buildings will likely be diminished. But that makes more sense for developers, anyway. "Tall buildings are very hard to pull off economically," observed Green, whose company is developing 745 Seventh Ave., a 1 million-square-foot project in New York City scheduled to open early next year. (Morgan Stanley, which co-developed the project with Rockefeller Group Development, sold the building in October to Lehman Brothers for an undisclosed amount. The 32-story tower, located in Times Square, has been under construction since 1999.) It is much harder to finance such a project, he said. He added: "Thirty to 40 stories is viable. … Structurally, it's very different from an 80-story building."

But it is even more cost-effective to develop buildings with 40,000-square-foot floor plates in the suburbs than it is to build 30,000- to 35,000-square-foot floor plates in a major downtown, Previdi noted. For that reason, he expects developers to favor the suburbs. "Tenants want larger-floor-plate buildings (and) buildings that are in safe locations, maybe half a mile away from the center of where you want to be, but easily reachable and commutable," he said. He noted that the individual offices inside such buildings are more spacious, which can make workers more productive.

"People don't want to pay $35 a foot anymore just to be next to everyone else," Previdi said. "If you go to a building and it's right where everybody wants to be, you have structured parking; a mile or two away you will have surface parking. That creates a rent differential for the tenant."

Certainly, the events of Sept. 11 did nothing to encourage movement back to downtowns. If anything, companies that had returned to CBDs are reconsidering those decisions. In the New York City area, for instance, developers say that as a result of Sept.11 anywhere from 15,000 to 20,000 jobs will be moved to nearby suburban locations in New Jersey and Connecticut.

"There has been trending toward the suburbs and larger floor plates and low- to mid-rise buildings for the last 10 years," said Mark Fewin, managing director at Trammell Crow Co. "That trend will continue."

But opinions remain mixed on just how many companies will leave the cities—the traditional centers of economic activity. After all, companies want to access the vast high-quality labor pools that tend to be attracted to these central districts and their vibrant activity. They also provide a concentration of companies, which aids in conducting business.

"We're seeing some companies move away, but I'm not sure that the prime midtown locations—where people want to work, where restaurants are, where transportation is available—I'm not sure they're going to suffer as much as the marginal central city-type places," said Green.