46 Penn Centre is one of Ken Block's latest office projects. Block is finalizing the loan on the property, and expects to kick off construction in April.
When Ken Block buys an office building today, he’s got a growing list of considerations when deciding what to do with the asset.
“The problem with a lot of these (old) spaces is their functional obsolescence,” he said. “The floor plates aren’t right, column spaces aren’t good, parking isn’t enough, they don't have good connectivity, and the energy systems aren’t working.”
He weighs a wide range of options, from demolishing the building and starting fresh to reskinning the existing structure. He then considers the cost difference, and estimates how much rent he could reasonably ask from a tenant.
In years past, this formula has guided his decisions -- and it’s worked well. But in today’s fast-moving and ever-changing environment, it’s much more complicated.
“What’s happening is that what people want today is different from what they wanted yesterday,” he said, noting that the average long-term office lease will extend past the point where millennials are the decision makers.
He illustrates: “If I were to hand you a new cell phone today and told you it had to last you ten years, you’d say ‘What?! I need a new phone within a year!’ he said. “In the past, we’d build out an office space for a 10-year lease, hand over the keys and say, ‘See you in 10 years.’ That doesn’t work anymore.”
Today’s leading companies aren’t just looking for an office to locate their employees. Instead, they’re seeking an environment.
“They want to know they have all the amenities -- not just basic ones like good parking -- but things we’ve never thought about in the past,” Block said.
He describes a futuristic scene: “One day, you’ll use an app on your phone to control the entire building. You’ll drive into the property and sensors will know you’re coming and direct you to the proper parking space. You’ll go inside and be directed to a hosted desk, depending on what’s open that day. The app will tell the air systems that you like the temperature set to 72 degrees with a little air flow. It also knows you live alone and need groceries after work and will arrange that through the app. Beacon technology will send you suggestions for what to buy, while sensor technology will control everything in the building.”
Located at College and Nall, Nall Corporate Center II is another Block Real Estate Services office project underway.
It’s a not-so-distant future. The technology may be expensive today, but in a few years, the modern office building will be completely re-imagined.
In the meantime, how does a developer prepare for innovation?
Block and his team have explored the idea of using DIRTT wall systems. (That stands for Doing It Right This Time, he says.) It’s a system of movable walls that allows an office user to dramatically change the interior space by unlocking and physically moving the walls into a new configuration. The owner builds out the main space and a few hard areas, like conference rooms and kitchens, but everything else is built using movable walls loaded with connectivity. A space can be dramatically revamped, but the connectivity remains.
It’s not a cheap option, he warns.
“But you have to ask yourself if this is the way of the future. The flexibility can really play out, particularly if companies are undergoing change,” he said. “That’s one of our biggest problems with office buildings: We lose a tenant and have to knock down 27 walls and build 25 new walls. Wouldn’t it be easier to just move a few walls around?”
It doesn’t end there. Block is also perplexed by the office market in terms of its worker efficiency. According to Block, the typical knowledge worker uses his or her desk for only 40 percent of the day. That leaves him wondering how to make that desk more valuable, whether it’s incorporating desk sharing, benching, or hoteling.
Another fun fact: In 2001, the average employee used 300 square feet of space. Just 15 years later, that number has been sliced in half, with the average employee down to 150 square feet in 2016. Where does this trend go from here?
“I have no idea what that means for the next 15 years,” he said.
In the meantime, Block is focusing on a number of local projects. Located at College and Nall, Nall Corporate Center is a 150,000-square-foot Class A office building with an outdoor commons and rooftop patio. He's also finalizing the loan on another exciting project called 46 Penn Centre. The 14-story building headed for the Country Club Plaza will be loaded with amenities: fitness center, rooftop patio, conference center, secured parking, energy efficiency upgrades. He expects to kick off that project in April.