COVID-19 could spur greater interest in transforming suburban office parks into mixed-use developments.
Suburban office parks were already experiencing a renaissance in the years leading up to the COVID-19 pandemic. A combination of rising commercial and residential rental rates in urban core areas and the desire of millennial workers to reduce their commutes had led real estate developers to transform older office parks into competitive properties by offering the right mix of uses and amenities.
The pandemic, which may have effectively reset corporate America’s work/life balance equation, has given new impetus to this strategy. Nearly a third of Americans are considering moving to less densely populated areas in the wake of the pandemic, according to recent data from a Harris Poll conducted among 2,050 U.S. adults from April 25-27. This could significantly impact the attitudes of both office tenants and residential buyers regarding location and amenities. It would also be happening as futurists predict a “new normal” following the pandemic where remote working could become more accepted. In addition, even when restrictions are lifted, there will be an emphasis on outdoor amenities that support social distancing.
As commercial real estate leaders plan for the future, many are evaluating changing user preferences and are looking for creative solutions to meet the needs of changing demographic preferences. Here are some insights into reimagining aging office parks by realigning space and tenant engagement strategies through the introduction of residential and mixed-use elements.
Considerations and Challenges
Predictability Benefit. Repurposing and introducing mixed-use elements in an existing office park is in many ways more predictable than a greenfield site development project. There is no need to deal with entitlement issues, unknown soil and environmental conditions and the development of a stormwater management system. This allows siting solutions to be determined more efficiently.
Cost and Risk Mitigation. Local municipalities often welcome new tax-revenue-producing elements because they provide a benefit to the greater community. The ability to re-use existing roads, sewer lines and utilities on the site also reduces upfront costs and minimizes risk.
Cost and Complexity of Adding New Program Elements. When planning to add new program elements to an existing office complex, approach it with surgical precision. That means understanding exactly which new spaces and building types will offer the most impact, as well as balancing new and existing construction to achieve overall harmony and balance. Also, avoid disruptions to existing building operations. This may require innovative scheduling and night construction.
Traffic. Traffic and site circulation are two of the most important aspects to consider when introducing new mixed uses in an existing office park. Adding residential and retail elements may dramatically increase traffic during different times of the day, especially after the traditional 9-to-5 office crowd has left. Community outreach programs can help convince residential neighbors that the project will accommodate increased vehicular and pedestrian activity.
Placemaking is Paramount. Leverage design, amenities and technology to create a new identity and a community with a sense of place. The goal should be to go beyond simply improving an aging suburban office park to increase rental rates. Commit to maximizing the value of the improvements by including architectural features and design elements that work together to create a true live-work-play experience. Consider including innovative food and beverage offerings as well as recreational facilities and community green spaces that encourage interactions among the workforce population, residents and the community at large.
Rebranding as a Tool to Raise Profile. It may not be enough to add additional mixed-use elements to an office park — rebranding is often a critical component of a successful redevelopment strategy. Prospective tenants and brokers may hold a negative perception of an older office park based on its earlier uses and its condition before redevelopment. Changing these perceptions generally requires a developer to devote time and resources to building a new brand identity for the property that reflects its new uses, design elements and amenities.
From Surface Parking to Residential Property
The Bishop in Atlanta is an example of how to breathe new life into an existing office property. The mixed-use development consists of more than 375,000 square feet of residential, retail and parking in the suburban Perimeter Center area north of Atlanta along Peachtree-Dunwoody Road. It’s adjacent to two office buildings. With a mix of REIT equity and bank financing, commercial real estate developer RangeWater (formerly Pollack Shores Real Estate Group) leveraged a competitive land cost deal and converted existing surface parking into multi-family buildings.
The Bishop and the newly created Springwood Connector that runs to Peachtree-Dunwoody Road have transformed a suburban office park by creating a lively mixed-use streetscape complete with a public plaza and greenspace for the residents and office tenants to enjoy. Pedestrian walkways carve through the buildings, allowing access to restaurants, retail and a nearby Starbucks.
There were some hurdles to overcome. Even though original permit drawings were available, the team decided to invest in a full survey of the site and underground utilities, including ground-penetrating radar, to ensure that new structural foundations would not interfere with existing utilities.
With the existing and proposed uses of the sites so close to each other, maintaining separation between office tenants/employees and construction activities proved difficult in many instances, especially regarding traffic. A parking garage was constructed on the south end of the property to replace the lot that became the site of the apartment buildings. However, the new south garage could only be erected at night so that trucks would not block office traffic during the day. The city would not allow deliveries at night, so the pre-cast panels and tees had to be delivered to a remote location on the site away from the offices and then moved through the existing internal office roads after business hours.
This was an especially unique project from an approval perspective, as the site straddles the border between two counties. Improvement district standards covering the perimeter area helped make connecting the two sites painless, as did easement agreements allowing work to continue along the borders of both properties.
The Bishop has several upscale amenities including a rooftop pool that overlooks the city and access to ground-level retail, all within walking distance to nearby shopping and restaurants. The project features two five-story buildings with a connecting public plaza and two precast parking decks for residents and retail visitors. Other amenities include dry cleaning, pet area, fitness center, and an outdoor courtyard with pool and grilling stations.
The façade is divided into two distinct masses. A dramatic masonry form anchors one corner and floats over ground-level restaurants, while contrasting gray tones and double-height balconies differentiate the adjacent shotgun-style units. Duplicate amenities are housed within each of the two buildings, allowing for the potential sale of the development as two independent properties.
Increased Residential Density = Higher Property Value
Peachtree Corners, another suburban Atlanta community, worked with real estate developer Brand Properties to assemble several parcels through public-private partnerships, land donations and density credits. The goal was to maximize property values and attract tech-focused millennials seeking live-work-play communities.
One parcel was within Technology Park, a sprawling office park from the 1970s with numerous low-rise brick office buildings. Some of the buildings were demolished, and Brand Properties constructed the 296-unit Echo Lakeside apartments.
The land assemblage presented significant challenges in the planning phase due to the steep terrain of the overall site. To compensate for the drop in elevation across the site, the project incorporates full-story steps and terrace levels.
Leasing demand was greater than expected. Brand Properties was able to pre-lease the property at a rate above any of its previous properties, and occupancy has remained high since the development opened in 2018.
It appears that strategically increasing residential density can help improve property values. Prior to demolishing the office buildings for the new apartments, the office park property sold twice, once for $2.2 million in 1995, then again for $2.8 million in 2004, the Atlanta Business Chronicle reported. Brand Properties recently sold the development to Cortland Properties for $66.1 million.
The project offers several distinctive features including a uniquely shaped pool, coworking spaces and a fitness center. It is bordered by two lakes where residents can fish and includes a boat dock for kayaking and an outdoor cabana/lounge. Land donated back to the city was developed as an 11.5-mile multi-use nature trail that connects to a larger trail system winding throughout Peachtree Corners.
Whether or not the migration to the suburbs continues in the aftermath of COVID-19, live-work-play communities will remain popular among millennials and soon-to-be empty-nesters. The common desire to enjoy the benefits of a dynamic, walkable lifestyle is contributing to the growth of this “new suburban” development model that continues to drive the transformation
of aging office facilities.
In August 2019, the NAIOP Research Foundation published “Profiles in the Evolution of Suburban Office Parks.” The report looks at five developers who have recently updated suburban office parks in the U.S. and Canada to learn how they made these properties relevant for today’s market.
To view and download the report, visit: www.naiop.org/Research-and-Publications/Research-Reports