Companies Blend Live, Work and Play
Millennials and technology reshape the modern office
The demand for creative office space is a byproduct of two seemingly unrelated trends: A focus on cost-efficiency among organizations, and the evolving role of an office as a proxy for organizational culture and a way to facilitate innovation. Companies have looked to the size and design of their office space to coalesce these trends, opting to lease smaller, open floor plans that promote collaboration and creativity. In other words, today’s companies are guided by the idea that “creative input will increase creative output,” ultimately improving bottom lines. As organizations continue to recognize and value a potential relationship between employee engagement, productivity and the workplace, we believe their adoption of creative office space may become economically beneficial.
One of our key considerations in evaluating office properties is the changing composition of the workforce, estimated to be 75 percent millennials by 2025. As companies identify the value that millennials assign to office environments, creative office space has not only become a recruiting tool, but served as a way for employers to rebrand. For example, several financial firms have acquired creative office space that is separate from their headquarters to present a refined image appealing to millennial talent. According to analysis from the Yale School of Management, “The growing influence of millennials means that companies need new ways to talk about their products and services.” We believe office space is becoming a valuable part of this dialogue.
Technology has also forced organizations to reevaluate space requirements, reducing the need for areas reserved for servers, filing cabinets and copy rooms. With an increase in mobile devices, employees have ditched their desks in favor of the office couch and in many cases, are experimenting with working remotely. Last year, 43 percent of employed Americans worked remotely at least some of the time, according to a Gallup survey. The traditional equation for calculating space needs is therefore in flux, requiring a reassessment of square footage, design and location preferences.
As significant as creative office space has become in representing organizational values and attracting talent, the physical location of this space remains critical. Historically, creative office space was concentrated in up-and-coming neighborhoods that lent themselves to large-scale repositioning projects. More recently, however, we have seen a growing focus on embedding the space within well-located, amenity-rich neighborhoods that maintain access to public transportation, restaurants, retail and residential developments. This blend of a “live, work, play” environment is an important backdrop for organizations to consider as they evaluate whether to build out creative office space in their existing headquarters or pursue it elsewhere.
The Denver market serves as a reflection of strong local economic fundamentals, including the quick recovery following the financial crisis and markedly low unemployment rate among large metros. The local diversity of employers, as well as their ability to attract and retain skilled workers, suggests a positive picture of sustainable growth. Notably, 24 percent of Denver’s population is millennials, with 33 percent of the 2 million jobs in Metro Denver held by this cohort. This dynamic bodes well for demand in office and other property types.
In October 2017, Goldman Sachs Asset Management Private Real Estate acquired the Colorado Bank Building in partnership with Harbor Associates. Constructed in 1907 in Denver’s Central Business District (CBD), this historic property features distinct architectural attributes, including a grand lobby, vintage chandeliers and bank vaults. Goldman Sachs intends to rename the building “The Vault,” as a tribute to its rich history and the unique physical features that will be the centerpieces of the repositioning strategy, including the formation of a highly amenitized office environment with flexible, creative office layouts. This investment represents the second office acquisition in Colorado, following the purchase of the Flatiron Park Portfolio in Boulder in March 2017.
Going forward, we remain excited about opportunities in the Denver area. We continue to focus on sourcing repositioning opportunities with the potential to create collaborative, creative-use layouts located in amenity-rich locations, particularly as the millennial effect redefines traditional norms surrounding property use and the workplace.
Joseph Sumberg, Co-Head of Goldman Sachs Asset Management Private Real Estate