- Real estate needs and decision-making are evolving in response to urbanization
- The preference for more urban living among both millennials and baby boomers, combined with city-center gentrification, has stimulated demand for urbanized suburbs.
- The generation of people that are embarking on their careers right now are the millennials who want to live close to work, and more employers are responding to these demands by providing work environments that are more walkable, vibrant and close to amenities.
- Mixed-use is becoming the new standard in urban development.
- Access to public transit is a strong driver of company relocations and new office developments.
- People today spend less time working their desk, which has driven the square footage needed in office space down.
Workforce, culture and work life balance are causing Georgians to transition back to its cities. Just ten years ago, companies were busy leaving cities in favor of the suburbs – not only for the affordable real estate prices, but also because the majority of their workforce preferred the suburban lifestyle and the benefits of living outside the city. Fast forward to today, corporations are looking to leave the suburbs in favor of a slice of urban bliss. Why? A new generation of educated, young Americans favors the benefits of city life; including public transit, night life, accessibility to social/cultural enrichment and a sense of community.
Blurring the Lines Between City-Suburb Distinction
Suburbs and surrounding “edge” cities are developing vibrant, walkable downtowns, that appeal to the kinds of young educated workers being pursued by big companies. Thanks to the generation’s size and influence, millennials are moving to new places made just for them, by them—revitalizing smaller cities or opting for hybridized urban-burb enclaves where quality of life is the driving force, often referred to as “live-work-play” developments. The kind of places where millennials are choosing to live still have the qualities of downtowns—dense housing, public transit, walkability, shopping, good food, great bars—without the high prices of downtowns. While the number of millennials is ticking slightly upward in small towns and rural areas, it’s nothing compared with the growth of their numbers in suburbs and cities.
Today, more than half of Americans live in suburbs. About 75% of postwar construction occurred in the suburbs. One hundred and fifty million suburbanites left city centers for better/newer/cheaper housing. In the process, businesses shifted from downtowns to areas closer to their workforce. More than three-quarters of jobs in U.S. metropolitan areas are located outside the urban core, and 43% are at least 10 miles away. Workers who traded large yards for a reliance on cars realized they may not have to keep up their end of the bargain as development is radically shifting in suburbs.
And millennials aren’t the only ones accelerating the demographic shift towards urbanization. Many non-Millennials are choosing to return to more urban living with walkable amenities. Households consisting of singles and couples without kids – both end of the age spectrum, are looking for communities that provide a place where they want to live and are close to work. Empty nesters are now considering buying condos and return to living more of a city life with everything in close proximity.
The edge cities now have to compete for their share of this population growth and counties are rewriting zoning codes to encourage more urban styled development. Cities are coming to realize that dense development – going vertical on smaller sites – generate more tax revenue than a big-box store surrounded by a sea of parking. The more progressive suburban neighborhoods are building high-quality public transit to ease traffic congestion, encouraging mixed-use, high-rise construction instead of more single-family housing. More and more, we will begin seeing a blurring of lines in distinguishing what is urban and what is suburban.
How Atlanta is Being Transformed
There are many opinions about what, exactly, is driving this increased urbanization. But within Georgia, there have been a series of events that, over time, have been transforming the Atlanta region into a very desirable, attractive place for people to live, along with a greater concentration of jobs.
Atlanta began in the early twenty-first century to promote “smart growth” or “mixed development” projects in which homes and businesses would be within walking distance of one another. Atlantic Station, just south of Buckhead, opened in October 2003, the 138-acre site of the vacant Atlantic Steel Company. By 2015 it was home to more than 3,000 residents and included more than 6 million square feet of office space. Other urban revitalization projects, such as the Atlanta BeltLine, Atlanta Streetcar, GreenLine Plan and Imagine Downtown, are radically changing the cityscape, neighborhoods and people’s attitudes towards living intown.
Access to transit has been a key driver of growth as companies compete for the attention of the vast millennial workforce, according to Michael Starling, economic development director for the City of Dunwoody. MARTA stations and easily accessible transit systems are magnets for high-density developments, such as Perimeter Center in Dunwoody, which is the only suburban office market with transit access in Atlanta. Dunwoody has begun a transformation from a suburban city known for a seas of big-box retail and parking lots around Perimeter Mall into a more urban environment.
Several of the public investments that have been made over the years have slowly turned less desirable areas of Atlanta into environments that are clean, safe, welcoming and lively. Once these projects get underway, they attract the attention of private investments, spurring even more development of these urban amenities. One project in particular is said to be a main catalyst for urbanization- the Atlanta BeltLine. As one of the largest redevelopment projects in the City of Atlanta’s history, the BeltLine is designed to improve transportation and promote redevelopment, while creating a space that is public, collaborative and contributes to the community’s overall quality of life. The project’s economic landscape provides a network of new and restored parks and green space, 33 miles of multi-purpose trails reconnecting 45 Atlanta neighborhoods, 22 miles of streetcar infrastructure accompanied by 46 miles of complete street improvements. The first section of the path, built on old railroad tracks in the city’s West End neighborhood, opened in 2008 and the transit corridor is scheduled to circle the city by 2030. The BeltLine capitalizes on the community’s assets through the creation of public spaces that promote health and well-being with its design and targeted redevelopment, while enhancing the area’s competitiveness for workforce talent. Still a work in progress, infrastructure improvements have already totaled $449 million accompanied by an estimated $3 billion in new private sector development within the BeltLine planning area.
Out with the Old – In with the New
Cities and buildings are changing in tandem with work and work styles. The changing landscape within Atlanta and surrounding suburbs has had huge implications for real estate investment and development. The dynamics of office space are changing significantly from what they were 10-20 years ago, in both form and functionality. Ideas about what makes a successful office environment have been evolving and the momentum for change has only accelerated since the Great Recession, when the development of office space dramatically slowed. Urbanization is giving more credence to the live-work-play concept and a new design of offices are starting to sprout up in response to consumer demand.
Opportunities for new ways of working, cost-savings, and competing for talent are all driving change in office environments; both in how they are designed and where they are located.
Less is More
Mobile technology has revolutionized the way people work and it has driven square footage to go down. The fact is, people spend less time at their desk than ever before, and they work differently when they are in the office. Today you can remotely access nearly all the data you need to do your job; therefore, more people are spending some days during the week working from home (and desk share). According to Gensler research, a global architecture design and planning firm, many people today spend less than 50% of their time actually working at their desk, while spending more time in other “work modes”, like collaboration, social interactions and learning. Offices are being designed in ways that are more conducive to employee productivity.
Earlier this year, Mercedes-Benz USA announced their plans to relocate their New Jersey office park to a new headquarters building in Sandy Springs, which was designed with cubicle-free “collaborative” workspaces. “We will have a lot of collaboration space and a variety of purpose-built locations from formal meeting rooms to casual spaces for brainstorming, which we refer to as ‘less me, more we’ space,” said Donna Boland, corporate communications manager at Mercedes-Benz USA.
Real Estate is Driving a Better Bottom Line
Companies are seeing their real estate as a way to cut costs. When companies start walking through their offices and see 50% of the seats vacant, they see the potential for cost savings. This has created a trend towards densification of office space, with smaller work stations and open office collaborative space and fewer private offices. While executive floors still exist in many offices, designed space has become more flexible to be inclusive of the talent they now have. “The open office is the office of the future”, according to Jarel Portman, founder and chairman of JPX Works, LLC. This, combined with mobility of work (which includes some form of desk-sharing) has had a dramatic impact on the square footage requirements, allowing companies to see their real estate as a way to drive a better bottom line.
The drive to reduce the amount of space needed has also led companies to consolidate multiple locations into a few mega-campuses. Among other efficiencies, it allows greater collaboration between departments by placing workers in closer proximity to each other, rather than in isolated silos. A great example of this “campus” consolidation is with State Farm Insurance, whose massive development in Dunwoody brings together several locations into one, 21-floor tower of mixed-use space. State Farm’s Park Center development sits on 17 acres and includes 2.2 million square feet of office space (some of which is dedicated leased space), along with 100,000 square feet of retail and restaurants, including a 200-room select service hotel. It will be connected to the Dunwoody MARTA station adjacent to Perimeter Mall and is said to be one of the largest corporate office developments in metro Atlanta’s history.
With a decreased need for cars (as more employees utilize transit options), less money put into expensive parking decks allow developers to reallocate that money into better design and perks for mixed-use space.
At DTSpade, our analysis of this is contrary to the market consensus due to two factors: the human condition and pendulum correction. Our office is a totally open environment with no private offices. The layout is efficient and allows us a yield on employees per square foot (159 sq. ft/per employee) that is beyond typical for an office of our size.
But humans, since the beginning of time, have sought some amount of personal space. Once the newness wears off and workplace efficiency metrics catch up, we believe that some of the new collaborative concepts will become standard business and some will become the office ping pong tables of the early 90s. In the end, the talent will decide how they want to work.
The second thing driving Urbanization is capital markets. There was a time when developers could put up massive office-only buildings on spec and race to market without any preleasing; developers captured fees and capital markets suffered. Atlanta was especially colored by a developer class who would sell their last trophy tower to out-of-town capital only to turn around and pluck those tenants into its newest trophy tower.
With the rent growth that we’ve seen in Atlanta over the last 24 months (see chart below) and a tightening of capital market controls, we have seen more capital returning to the Atlanta market. We’ve also seen more mixed-use, higher density projects with considerable thought put to tenant mix, community feel and a curation of all aspects of the development.
If You Build It, They Will Come…and Stay
While business leaders want to take advantage of cost savings, they also recognize the critical need to attract and retain qualified people is still a challenge. Companies are realizing the need to balance cost-savings with worker engagement when competing for this next generation of talent.
According to Gensler, smaller workspaces need alternative settings for people to “get away” for focused work, collaboration and building social capital; in other words, a balanced workplace, which resembles a campus that supports different activities.
Providing more collaborative, flexible, “open office” work environments play a big role in planning for companies that place a high value on recruiting young talent. New workspaces are being designed to reflect the values of the next generation in areas of sustainability and well-being. Generous amenities and spaces to socialize are being integrated into the workspace design. “Outdoor space is in high demand”, according to Stephen Swicegood, principal at Gesler.
More firms are setting their sights on these intown locations in order to offer even more for employees. State Farm is just one of many companies coming to the realization that location is a key part of recruiting and retaining talented workers, and more employers will be following suit and establishing a presence in locations that can offer convenient access to public transportation and mixed-use amenities.
Employee engagement is now playing a bigger role in companies’ real estate decisions and where they decide to locate. Practically unheard of 20 years ago, companies like NCR Corp. are surveying employees about their wants and needs for a work-life balance to ensure they will appeal to existing employees, while attracting new ones. According to Justin Clay, VP of Global Government Relations for NCR, when deciding on relocating their headquarters from Gwinnett County to Midtown, NCR conducted focus groups and surveys among all its employees regarding what amenities they would like to have in a new location. “Did they want a gym or a coffee shop, a park outside with bike racks, etc.? Having all the amenities of being in an urban environment was a big factor in what brought us to Midtown”, says Clay. He is finding that even older employees are realizing the perks of living near so many amenities and are ready to revisit the convenience of city living.
Just like similar cities across the U.S., Atlanta will continue seeing a transformation of companies reinventing their workspace, with unique campuses that inspire employees and attract the right talent. The good news for developers is that despite the added complexity, mixed-use development can yield a higher return on investment than traditional development. 7
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 Saunders, J. “Urbanizing Occurring in a ‘Nodal Pattern’ in Dunwoody”. Atlanta Business Chronicle. (June 10-16, 2016)
 Kundell, James E., and Margaret E. Myszewski. “Urban Sprawl.” New Georgia Encyclopedia. (June 27, 2016). Accessed 05 July 2016.
 “Top Trends Shaping Design.” Gensler Design Forecast 2014. Report available online here.
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 Sams, D. “State Farm, KDC, Announce Massive Project.” Atlanta Business Chronicle. (Feb 14, 2014). Available online here.