CREJ - Office Properties Quarterly - January 2015
Sleeping giants” are not fairy tale creatures or historic architectural icons like the Empire State building in New York City or the Wells Fargo Building in Denver. Sleeping giants in corporate real estate are the vast stock of older, more prosaic buildings dominating our skylines. Sleeping giants are valuable building assets that struggle to compete as cities change around them and new buildings enter their markets, luring away prime tenants. What these buildings have in common, given their age, is that they were built before a large number of form-giving developments in building technology were introduced. Before, for example: Ethernet was standardized in 1983; cellular telephones were introduced in 1984; the Internet backbone was created in 1992; the U.S. Green Building Council was established and under-floor air systems were incorporated into signature projects in 1993; and building automation systems emerged around 2000. These buildings were planned and designed for a traditional idea of the corporate office environment, well before Richard Florida chronicled the rise of the creative class of workers in 2002 and pop culture lambasted the drudgery of high-walled cubicle environments in movies like “Office Space” and “The Incredibles,” not to mention the ubiquitous Dilbert comic strip from the mid-1990s. These buildings have very little of the amenity infrastructure to help them compete with the redefined workspace led by creative 21st century firms like Google, which went public in 2004. That same year, Google’s free-spirited approach to workspace was widely published and won numerous design awards. To illustrate the scale of aging asset inventory across the country, we analyzed building data across 14 key U.S. corporate real estate markets. We built our analysis from JLL’s Spring 2014 US Skyline Review. The buildings represent the top-quality urbanized office micromarkets in each city. We graphed today’s buildings by year completed since 1950 to show that the vast majority of our current multitenant office buildings were in place by 1990, which was 25 years ago. This building landscape is familiar to us, we can see it down many streets in Denver, and this is the opportunity to reposition assets facing our industry. While new office tower construction is exciting, the bigger and more enduring story lies in understanding how the buildings in the background must reposition themselves to remain relevant. The bottom line is that aging assets become candidates for repositioning when there is evidence that investment will result in higher occupancy, increased rental rates and a positive return on the investment.