In the News

Developers Devote Top Dollar To Meet Office Tenant Demand for Outdoor Spaces

From Houston to Chicago Workspaces, Green Is the New Black

Marissa Luck | CoStar News

October 15, 2021

Open-air markets, outdoor yoga, beekeeping classes, concerts on the grass. If those sound like programming events that would take place at a city park rather than an office building, that’s the point.

But those outdoor activities aren’t taking place in traditional parks — they’re popping up on rooftops of Manhattan and Washington, D.C., skyscrapers, in parking lots at Houston office parks and at former industrial sites in Austin, Texas.

In an age when working in the office is often optional in the pandemic, landlords are getting creative with ways to get more tenants into or just outside of office spaces. That means incorporating outdoor plazas, gardens and rooftop terraces into the design of new and existing projects and making those spaces an extension of indoor amenities with access to electricity, Wi-Fi, food and activities.

“Whether it be in Houston, Austin, San Antonio, Atlanta or Charlotte, I think the value of outdoor spaces has never been more appreciated than it is now,” said Bill Odle, president of TBG Partners, a landscape architecture firm with offices in Texas' four major metros and corporate clients such as Oracle, Yeti and Trammell Crow Co., in an interview.

Large tech giants such as Oracle, Facebook and Apple started pouring millions of dollars into outdoor spaces at their corporate campuses well before the coronavirus outbreak in a trend that was already spilling over into multitenant office buildings before COVID-19 changed the office market. But now a renewed focus on health and wellness has accelerated the desire for developers to incorporate more nature into buildings.

That means developers are committing more dollars to outdoor spaces, sometimes redistributing funds from elsewhere in a project or giving tenants more options to incorporate private balconies and terraces into leases.

“What we have seen since the pandemic is that developers are coming and asking for outdoor space being incorporated into the design from the very beginning, more than just a tenant request,” Odle said. “I think you’re finding more and more building owners, developers and brokers that are trying to facilitate or actively find ways to program outdoor spaces” with food trucks or outdoor classroom space.

Premium Rents

Incorporating an outdoor design and other wellness-oriented features into projects can be pricey, but that cost can be offset with premium rents.

To that end, buildings with Fitwel and WELL building certifications were able to charge rents between 4.4% and 7.7% higher than office buildings without them, according to a 2021 study from the Massachusetts Institute of Technology of office buildings in 10 major cities. Healthy building certifications like WELL, a for-profit certification, and Fitwel, a nonprofit standard, were deemed merely nice to have prior to the pandemic and then shifted to a must-have in the minds of some owners.

"In some places, we’re seeing an added emphasis on outdoor space, and developers are willing to spend that money if they believe that is something that will bring value to it so they can increase" rents, said Ian Zapata, design director and global practice area leader for architecture firm Gensler, in an interview.

The spending still has to make financial sense because developers don't want to spend infinite funds on natural features, Zapata noted, adding that often the best strategy is to put private terraces attached to tenant offices that can be folded into the lease.

"Whereas before you could find a tenant that would take the outdoor space but didn't want to pay for it, I think that you’re seeing a lot of these West Coast companies or West Coast-influenced companies understand the value to their employees and are willing to pay for outdoor space," said Zapata, who is based in Gensler's Dallas office.

Silicon Valley companies accustomed to access to nature have exported their tastes to other markets, and now outdoor amenities are expected at almost every new office project in Austin, Dallas and Houston, Zapata said. The spaces aren't just seen as pretty places to sit but a functional social space to foster connections that drive innovation.

"A lot of it is driven by these tenants that everyone is trying to land. If you don't have it, that might cost you the deal," Zapata said.

Large landlords have taken note. Investment company Nuveen added beehives onto its seventh-floor terrace as part of a $120 million renovation to its office tower at 730 Third Ave. in midtown Manhattan. In September, one of Chicago’s biggest landlords completed a $6.5 million renovation of the outdoor plaza around the 83-story Aon Center, adding gardens, fire pits, an outdoor bar and open grass areas.

Even in Houston, a sprawling city known for its highways and ports rather than its trails and parks, developers are responding to a growing demand for green space. The latest example is Memorial City, the 300-acre mixed-use district in West Houston that is home to 3.2 million square feet of office space. In response to growing tenant and customer demand for outdoor amenities, owner MetroNational is rolling out an overhaul of the outdoor spaces around the office buildings with a new 30,000-square-foot pocket park nestled in between a cluster of Class A buildings.

With more tenants asking for access to outdoors, Memorial City developer MetroNational is building out a new 30,000-square-foot outdoor and event plaza near its office towers in Houston. (MetroNational)

In a project called The Lawn, MetroNational plans to convert a vacant commercial plot and a section of a parking lot into a park that is expected to act as an outdoor meeting and event space for nearby office tenants. The project is planned between the Murphy Oil Tower at 9805 Katy Freeway and the towers at 920 Memorial City Way and 945 Bunker Hill Road, said Brad MacDougall, MetroNational's director of office leasing, in an interview.

MetroNational already was planning to enhance the outdoor areas around the buildings, but the pandemic spurred it to speed up its plans, MacDougall said.

The Lawn is just one of several extensive outdoor renovation projects MetroNational has planned for Memorial City's office tenants. (MetroNational)

“All of our office tenants are seeking more amenities and they’re valuing more wellness for their employees. … We were planning this pre-COVID, but we enhanced it and doubled it in size due to our consumers and their experiences of what they enjoy,” MacDougall said. “One of the reasons why we built The Lawn was to do something different that connects our tenants to the outdoor areas with all of our other amenities such as fitness centers, restaurants and Memorial City Mall.”

MetroNational envisions The Lawn becoming a cultural hub for live performances, events and festivals. The space includes seating areas that can serve as a meeting space for companies or for employees to take a break during the day. The project includes building The Arbor, a covered structure and performance space, as well as adding a small water fountain, custom play equipment, game tables and a new restaurant, according to a statement from MetroNational.

Construction on The Lawn started at the beginning of the quarter with the planting of new oak trees and other site work. MetroNational expects it to wrap up by the end of the year.

MetroNational joins a growing list of Houston developers turning the city’s concrete spaces into communal outdoor office perks.

M-K-T connects an office-retail project with a nearby trail, inviting pedestrians into the project. (Triten Real Estate)

Last year, Houston-based developers Radom Capital and Triten Real Estate turned a former industrial complex that was closed off from a nearby trail into an adaptive-reuse project called M-K-T, which now connects the office and retail spaces into the popular hike-and-bike trail in The Heights neighborhood. Contractors cleared out significant overgrowth along the trail, added native plants to the landscaping and created an open-air space for farmers markets and events. A new 40-foot, open-air, asymmetrical roof with custom lighting connects two buildings and calls attention to the spaces along the trail, drawing in pedestrians. The developer hosted 150 events at M-K-T over the past year, including outdoor yoga sessions, pet adoptions and regular sunset farmers markets.

Access to the outdoors attracted new office tenants to the M-K-T project even during the difficult leasing environment early on in the pandemic, with tenants such as software company SmartVault specifically citing the outdoor amenities as a key driver in signing a lease in the project.

Springdale Green has about 36,000 square feet of outdoor terraces and 19 acres of restored native meadows planned. (Gensler)

Another M-K-T office tenant, Brian Miller of accounting firm Miller Grossbard Advisors, said he can now impress clients by taking them on a 10-minute walk along the trail to a host of nearby restaurants outside the project. "The clients [are] like, 'That was awesome,'" Miller said in an interview last year.

In Austin, San Francisco-based developer Jay Paul Co. is building Springdale Green, a sprawling office campus totaling 872,000 square feet in East Austin where more than two-thirds of the site will be reserved and restored with native meadows, woodlands and an urban creek tributary. The two office buildings in the project are expected to feature 36,000 square feet of outdoor terraces that offer a garden-like extension of the interior spaces to blend indoor and outdoor working environments. The design includes a 600,000-square-foot underground cistern.

Springdale Green shows more developers are beginning to see these natural elements as a selling point, notes Gensler's Zapata.

"They understand that outdoor space is not just about aesthetics and the way it looks, it’s really about making it functional and making sure people actually enjoy using it," he said.