Transwestern has released a report examining a number of creative office projects that have generated substantial returns for investors upon completion. The adaptive reuse developments span Boston, Chicago, Los Angeles, New York, Phoenix, San Francisco, and Austin, Texas. The report also highlights 20 additional large creative office projects currently underway across the country.
Michael Soto, Director of Research in Southern California and co-author of the report, explains that while creative office conversions are not new, what is different this cycle is the sheer volume of creative office exits nationally at core/core-plus pricing that have occurred during the past five years – with the buyers being major institutional investors or well-known owner/users.
“The conversion of a property from industrial or retail use to creative office has become an increasingly popular value-add strategy for investors,” Soto says in a release. “Two trends are fueling demand for this type of differentiated office product: One, technology, advertising, media and other companies trying to attract millennials are interested in the characteristic features of creative office space – open floor plans, natural lighting, common spaces and amenities such as cafés and rec rooms. And two, tenants are returning to cities, where they can take advantage of live/work/play environments.”
Based on favorable exit pricing of some major creative office projects around the country, this type of value-add strategy, on this large scale, is now being considered by developers, either via direct investment or joint-venture partnerships with equity partners. Conversely, stabilized creative office properties are on the radar of many national and international institutional buyers that are paying traditional trophy Class A pricing for these types of properties, usually based on the credit-worthiness of the tenant, as well as the location of the project.
The report cautions, however, that many of these projects were acquired and developed under very different economic conditions than exist today.
“Rising land, building and construction costs – especially in hot neighborhoods – may add more risk when compared to a few years ago, when we were at a different point in the real estate cycle,” said Sandy McDonald, Director of Research in Chicago and co-author of the report. “In addition, adaptive reuse often comes with hidden costs and potentially expensive future property modifications.”
Moreover, the popularity of the creative office concept means that there is more inventory in the market today. Landlords that own existing office buildings or are doing ground-up development are realizing that they must consider strategic property enhancements and creative office-associated tenant amenities to stay competitive in the marketplace.
To view the complete report, titled Creative Office Projects: Adaptive Reuse Generates Staggering Returns for Investors, click here.
Related Stories
Office Buildings | Mar 2, 2018
Give your HQ some heart: Creating branded workplaces
These days, if your office space isn’t a true reflection of your brand, you’ve missed a big opportunity to connect with your audience.
Office Buildings | Mar 1, 2018
The top seven floors of Macy’s State Street store will be converted to office space
The deal is worth $30 million.
Office Buildings | Feb 23, 2018
Why the 'cultural fit' doesn't fit
Evidence shows that companies that hire on or emphasize cultural fit struggle to innovate and change.
Office Buildings | Feb 20, 2018
New Tommy Bahama HQ looks to ‘Make Life One Long Weekend’ for its employees
Approximately 400 employees will occupy the SkB Architects-designed space.
Office Buildings | Feb 20, 2018
Flex and co-working office spaces create value for users, tenants, and developers, according to a new survey
More landlords see these spaces as “long-term solutions.”
Office Buildings | Feb 19, 2018
Large photovoltaic “wings” help eliminate emissions from this Italian headquarters building
The wings have a surface area of over 1,100 sm.
Office Buildings | Feb 13, 2018
Office market vacancy rate at 10-year low
Cautious development and healthy absorption across major markets contributed to the decline in vacancy, according to a new Transwestern report.
Office Buildings | Feb 8, 2018
Custom home or corporate office? Investment firm wanted both
Designed by Vertical Arts Architecture, the building features design elements found in high-end custom homes in the region.
Office Buildings | Feb 8, 2018
The American Psychiatric Association moves into The Wharf
The new office occupies 3 floors at 800 Main Avenue SW.
Wood | Feb 5, 2018
The largest timber office building in the U.S. will anchor Newark, N.J. mixed-use development
Michael Green Architecture is designing the building.
