Plenty of grand experiments are circling the air around commercial real estate these days. In the office sector, a lot of money is being spent on how to reflect corporate culture in a way that gives companies an advantage in the hunt for talent.

Our office panel provided plenty of examples. Tim Hickman, a principal at Substance Architecture, noted that his firm is being asked to define culture via design. 

“Office space can be a tool in the attraction or retention of top talent,” said Adam Kaduce, senior vice president at R&R Realty Group. His company dropped multiple millions of dollars on a Jordan Creek Parkway office building intended to improve those odds.

Maybe that office includes a new definition of “neighborhood,” said Kate Byus, vice president at JLL. It could be your work group, it could be the cluster of retailers right outside the office door. It gets complicated.

Or maybe an employer wants to win that fight for talent by focusing on the well-being of its employees. 

“What we’re seeing is that well-being is rising to the top because your people are so important to your organization and you need to look at your space through that lens,” Kim Augspurger, president of commercial interiors firm Saxton Inc., said.

On the other hand, you can really mix it up with no assigned offices, just a short-term lease for space in a spot that is funky cool, such as Geoff Wood’s Gravitate Coworking. Wood provides a phone booth for privacy and a stepatorium, a piece of design splendor that focuses on a stairwell that provides big views inside and outside the office. Apparently the feature is so cutting edge that not even Wikipedia has come up with a definition.

Some folks doubt whether the coworking concept will catch on in a big way in Greater Des Moines, though several building owners are finding it a nifty way to generate rent. 

“At least with coworking here in Des Moines, I think we’re still getting our minds around what that means,”
Wood said.

You might not see it from the outside, but there’s a lot happening at the office. 
 

Watch the roundtable video in its entirety here. Watch the other four videos at businessrecord.com/arem.

The process of discovery

How often are you asked to “redefine who we are”?

Tim Hickman: That is language that we really didn’t hear in the same way 10 years ago. And now I think we talk about space in a different way. Federal Home Loan Bank was an incredible opportunity for us. The new space (at 909 Locust St.) is entirely different. It’s got color in it. They were very compartmentalized and they realized that their space was holding them back from what they wanted to be as a company, and from what they were hearing from their younger people. We actually were fleshing out what the culture was. And so it’s an interesting two-sided coin. People know that they want the culture to be different, but they don’t always know how. The process of designing the space actually can be a discovery of what your goals for your culture can be. 

How do you achieve that?

Hickman: Part of it is what we call pre-design. You know I think that there is value in talking about the process. And there is a challenge. Building space is expensive. Everybody is looking for ways to make it cheaper. The challenge is if you’re not prepared to invest those dollars and if you don’t have the planning in place, you may realize we just spent $3 million dollars and you didn’t spend it in the right way. Those dollars spent for programming are one thing; the dollars spent defining the problem can be the most valuable dollars you spend because it prevents you from getting to the end and saying, “Oh, crap, we missed some great opportunities that we now can’t afford to pursue.”

Kim Augspurger: What I found in my experience is that oftentimes it’s the first time companies have to decide what kind of culture they are going to have. Because they’re having to make decisions such as “Does everybody have the same size office? Or are we open plan? Or are we using color?” And now there’s a dollar sign attached so there’s real motivation to come up with the right solution.

Adam Kaduce: We’ve seen a lot of customers look at the design costs and look at the build-out costs, look at the real estate costs, and they all put that on a per-square-foot basis and that can seem pretty daunting. And then what they do is they take their employment costs and their monthly payroll and they put that on a per-square-foot cost, and all of a sudden $18 or $20 per square foot on real estate doesn’t look so high when your employment cost is $500 or $600 a square foot. So if you can use your culture and your values to put that into your space and it helps you retain and track that talent because your culture is there, all of a sudden it’s an investment instead of a cost.

Kate Byus: We like to use metrics with our customers to help them really bring that up. And so over a 10-year period the average cost for an organization is 82 percent of that cost in the people. Ten percent is in technology. And 5 percent is in the built environment. And so that helps people to go, “Oh, OK. I need to slow down and really think about this because you know I’m spending that 5 percent over a 10-year period and the only reason I’m writing a check is because we have people.” So it’s the why underneath it. Space used to be a what. And if you can move it over into a why conversation, that’s when you really create the right solutions.

Are the spaces getting smaller, or is the trend going back to a little bit more room?

Augspurger: I think individual assigned kinds of spaces are definitely smaller. We’re not really seeing the per-person square footage drop. It’s already dropped a lot. So you reach a point where it can’t go down a whole lot more. But people are investing in the “we” spaces. They really make a difference. They make the space a place people want to come to. We used to be laser-focused on the individual primary spaces. And all the other space kind of got the leftover budget and the leftover energy. And it is completely reversed.

Hickman: I do think it’s dangerous to look at some of the trends and say this is the way. ... Because we’re not providing as much individual space, we can vastly reduce the amount of space that we have for our people. I think it’s really more shifting the priorities of the spaces. And there’s a lot of anxiety about that. And when you talk to a company about changing their culture, a lot of companies have a relatively conservative work community. Insurance is not necessarily always on the front edge of crazy office trends. But saying, “People are not gonna have dedicated office spaces. They’re gonna have to figure out where they want to work every day,” that’s a big culture change. And we’re seeing companies come at that in a lot of different ways. You know, Principal (Financial Group Inc.) has really taken a huge leap out to say, “You could work in a different place every day.” There are a lot of other companies that are reducing the size of the individual spaces, but then adding a lot of alternatives.

Are you being asked to reconsider the open workspace? There was a Harvard study this summer that said it really doesn’t promote collaboration. It may not be as productive as first thought. Or was it that big of a deal to begin with? 

Byus: I get asked that all the time. Yeah, it’s an issue. Open space is distracting and noisy. So you know there are things you can do to help with that. But at the end of the day, private spaces are expensive and they’re not flexible. And so they don’t really work well for the company. We always encourage people to really be thoughtful and have choices. You’re not handcuffed to your station anymore. You can work virtually anywhere. So create spaces where people can be focused. And they can do heads-down work. And they can collaborate. And you create a space where all those options are available and then it does work.

Hickman: Flex at risk is the open office where there are no other options. That doesn’t work. But I think instead of killing the open office and putting in 78-inch-high partitions and having the rat maze of office space, it’s a smarter solution to say, “We’re going to figure out what types of spaces actually work for our people and we’re going to design the right percentage of those spaces.” 

I think we’re seeing more honest engagement. Do you really need five conference rooms for 18 people? Or do we need six for two and only one large conference room?

Byus: It really matters who you are asking. Demographically, Gen Y would much rather be in an open space, based on research, and baby boomers would rather not. 

Hickman: We’re also seeing a lot of the smaller to midsize users look at the Principals of the world and say, “I want that.” There’s a lot of great examples in Des Moines of companies that have really tricked out their office space. And so these up to 10,000-square-foot users are coming to us and saying, “We want that. We want to be able to provide that. But maybe we don’t need the collaborative space. We don’t need all the conference rooms all the time.” 

Augspurger: I love it when I see people asking themselves those questions by department, because it’s not necessarily one-size-fits-all. Not even for a company. And what accounting needs might be very different from what sales needs. And so just getting really into the nuts and bolts of what those people need for their general work habits is great.

Cost control

What are you seeing in terms of the cost of office space in the market?

Kaduce: Lease rates are rising, and that’s really a function of construction costs right now. I don’t know if anybody has even tried to add a bar to your basement or something right now. It’s tough to get contractors. It’s tough to get subs out there. So really I think you’re seeing a rise in construction costs. But you’re also seeing a rise in design. You’re seeing higher-quality products ­— glass, all of those things cost money. And so you’re just seeing that push up. Talking to landlords all over the country, Des Moines is still very affordable. 

I was touring a building in Denver, 40 to 50 stories, very similar glass construction to our Westfield building, and it’s almost three times the price. So I think you’re going to continue to see prices rise, but ultimately you are getting a better product and probably an opportunity to move into higher-quality space. And again then when you put it with your employment costs,  yeah, maybe you are in one of the more expensive buildings in town, but that’s still just nominal compared to what you are spending overall for your employment costs. And if it saves you a couple of new hires or saves you some turnover, all of a sudden it was worth it.

Impact of Jordan Creek office rents

What impact does the more expensive space on Jordan Creek Parkway have on leases in the rest of Greater Des Moines?

Kaduce: Well, I think ultimately it’s probably giving maybe the other landlords an opportunity to raise rents, but I think it’s coming with an opportunity to reinvest in those properties. I think you’re seeing maybe Class B and C products being invested in. And be redone. And adding new amenities. Adding new finishes throughout. And an opportunity to push those rents up. I think for landlords that are just thinking they’re going to get a free rental increase, that’s probably not the case. I think tenants and customers are demanding nicer buildings, more amenities, and they’re not just going to move into the same old product.

Who’s calling the shots these days on rents? Is it a landlord’s market? Tenant’s market?

Kaduce: I’m still waiting for a landlord’s market to show up. There are still plenty of options for customers in the marketplace. We are seeing this market really transform into a market that escalates. There’s built-in escalations in rents. That’s maybe more of a landlord-friendly thing, but I still think customers are competing in the marketplace. We’re competing to win clients’ business. They still have plenty of options available. And with rental rates going up, all of a sudden that opens up opportunities for build-to-suit as well. 

So now you’re competing with existing product with new construction, and then really everything’s on the table at that point if you can build a building.

Hickman: I mean it’s an interesting moment in time when you look at how much money you spend on office space. We have a new standard that’s been established. I don’t think Kyle Krause would be surprised if I tell people [the Krause Gateway Center is] the most expensive office building that we’re likely to see for a long time. And it’s totally in a class by its own. But I think we’ve also seen a lot of variety in what’s being delivered. And they’re not all super expensive. 

Byus: I think a lot of the micro-markets are starting to show themselves too. I mean I used to feel like it was a downtown versus West Des Moines exclusive conversation. But now we’ve got other northwest suburbs. We’ve got Waukee. We’ve got Ankeny. We’ve got Johnston. A lot of these places are coming on board, usually anchored by a major employer, but then they start to get some of the satellites that gravitate in there. And some of those just by nature have different price points.

Geoff Wood: From a coworking perspective, we don’t think of cost per square foot. I mean I do, because I lease the building. But our tenants don’t do that. It’s all a service price. We have interior market, user fees, those types of things. That’s probably the hardest thing to get people into our space — especially if they’re a corporate user or remote worker — is to get them out of that mindset of cost per square foot. Because it’s really a premium product that you’re buying with the amenities that come with it. So I can tell you price per square foot, and everything you could use there, but if you just do your office it’s going to be astronomically expensive to be with us. But that’s not what you’re actually getting. So I’m glad to hear they are going up, because that helps people with us. But I would say it’s going to be interesting if it shifts away from that for tenants or if we get more people looking at our types of models as opposed to the traditional way to lease.

Have some of the different uses for industrial space affected the office market?

Kaduce: Yeah, we are seeing more users look at that as an option, whereas five or six years ago they would have never done that. We’re actually designing an industrial space with higher parking ratio now. One of the important things to Hy-Vee was being able to get everybody on-site. You may not be able to fit them all into the building, but industrial spaces historically have not had enough parking. 

So we’re looking at that and making sure that when we do build an industrial building, we’re building it as flexible as possible. But a lot of those things that an office user might like, we’re seeing more industrial users want too. E-commerce users typically have more people at least until they move to more automation. So a lot of those amenities can work for both industrial and warehouse users. We’re talking about walking trails and outdoor seating for industrial buildings, things you would have never talked about a few years ago, because we do see more of those office users wanting to take advantage of that space. It is a blank canvas.

Augspurger: And you see office users turning office into industrial, or an industrial feel. So you rip down the ceiling grid and the tiles. Ten years ago we would have said this is an unfinished space, and now it’s move-in ready.

What are some really, really wild futuristic office trends that you predict?

Kaduce: I think potentially one of the single greatest impacts in commercial real estate is going to be the move to driverless cars. 

I was in a different market and I was touring a parking garage. The life of a commercial real estate broker, let me tell you. It is designed at zero grade and the ramps are mobile so that you can take it apart and put it back together as an apartment building that’s made with higher ceilings so that you can convert it to an apartment. I think Des Moines may be slower than other markets to adapt to the autonomous car or more car sharing or concepts like that. There are 5 billion parking stalls, and those are going to go away eventually. Or the lease is going to start to get smaller. And what happens to all of that space? Now all of a sudden where we had parking lots, we can do a lot of different things. It may not impact a market like Des Moines like it would Manhattan, where you can build up and there is a lot more demand for that, but I think the other thing that we’re watching too is parcel delivery.

As more people buy things on Amazon, what do you do with all of that stuff? I walked by an apartment in New York and the bellman was standing there and there were probably 45 different Amazon packages at his feet. So what do we do with that to get parcel delivery to units? And that’s not just a one-day thing; it’s an everyday occurrence. So how do we make sure we get parcels and packages securely to people, I think, will be another trend that will impact commercial real estate.

Augspurger: I think it will be great to watch the health and well-being trends really get even further adapted in the office space. I mean right now we hear that sitting will kill you. And you’re going to go blind from your computer screen and someday we’ll really perfect how you can either stand or walk or move around these different, to-be-developed, I suppose, pieces of office equipment and maybe the computer light will help me get my vitamin D and actually improve my complexion or something like that. We hear about green walls and taking that a step further with living plants and trees. I’ve seen touches where they want a fruit tree so somebody can grab a fresh apple off the tree in the office. Yes. Or maybe some herbs that they can put in their water. Something like that. So who knows? Watch for some of those trends in a major metro near you.

Byus: There are actually sleeping pods. You can actually buy them. In places, I think, you know, if you have programmers or IT people that are there. I mean they work really weird hours, and so that’s where you’re seeing that application. First you have to culturally accept the fact that a nap is OK. But it is available. 

Hickman: When you think about the driverless cars, I think we’re in a process of the work environment sort of dissipating and people working in different places at different times. Having freedom. I think that dissolution of the work environment is balanced by the desire for culture and some kind of shared experience. Somewhere in between those two, we’re going to find balance. And I think we’re in the middle of figuring out what that balance looks like. 

In closing: Project management, melding the old and the new, spaces that matter

Byus: This whole idea of finding the right solution is more complicated than it used to be. And there are more facets. And there are more experts and there are more layers. And it’s getting democratized. And there are more choices. There should be and could be and will be that much more emphasis on the planning part of it. So make sure that you’re getting your shareholders and your experts together well before you shop for space; there are so many critical decisions that have to be made before you start shopping.

Augspurger: Companies did not look at their space through the lens that they look through today. Because we’ve got a process lens, everything was about cost and process. And the people component wasn’t even in the conversation. And today, the people conversation is first. And so we’re creating spaces that people want to be in. And I just think it’s a great moment in time for workers to really have this opportunity to be in spaces that matter.

Kaduce: I think one of the most exciting trends in commercial real estate in Des Moines is just that melding of suburban and urban office spaces. We’ve seen amenities really go back and forth. Buildings in the East Village are going to include parking, which has been more of a suburban amenity. And then you’re seeing we’re building buildings in the suburbs that include food trucks and on-site coffee shops and things like that. So I think one of the uniquenesses of Des Moines right now is because those commute times are so low, you’re not seeing maybe the pull to one market or the other, but you’re seeing people wherever they are, they want those unique amenities. Whatever they have in the suburbs they want downtown. And whatever they want downtown they want to be able to get those in the suburbs. And I think that’s elevated the real estate game all over downtown as well as in the suburban markets.

Wood: In our new space the things that people are most excited about are almost the old school things that we put in. It’s the custom furniture that we built. We have a 75-seat auditorium that’s a big set of stairs. And when people see that they’re just like, “This auditorium is amazing.” And that’s what’s drawing people in. And then we have like a maple and steel kind of like a set of restaurant booths that are intended to be just like quick meeting spaces. Those feel very old school and functional to me, but it’s looked at as innovative in the way that we’re doing it, and that’s really bringing people in, so it’s like kind of paradoxical in what the function is.

Hickman: If companies can see a new space as an opportunity to define their aspirations, then the design of that space is actually a tool to help them reach that. I think there’s a realization of the power of that. And I think that’s going to increase.

Office Takeaways

Let’s cook up some culture

Office planners and designers are being asked to help define the corporate culture as a way to attract and retain talent.

“One of the things that we’re seeing in the office market, more from a design perspective, is a recognition that office space reflects culture,” said Tim Hickman, a principal at Substance Architecture. “Office space actually reflects important information about the characteristics and the highlights and what’s important to a company. New employees care a lot about that.”

Hickman’s firm was asked to define the culture at the Federal Home Loan Bank of Des Moines after it bought a 23-year-old office building at 909 Locust St. and ordered a transformation to accommodate its 300 workers. 

“They were very compartmentalized and they realized that their space was holding them back from what they wanted to be as a company. … We actually were fleshing out what the culture was.”

This office feels like a warehouse


In some cases, office users want that industrial feel and builders of warehouses and other industrial buildings are keeping office uses in the back of their mind.

“We’re making sure that when we do build an industrial building, we’re building it as flexible as possible,” said R&R Realty’s Adam Kaduce.

Higher parking ratios are key to accommodating potential office users, as are amenities.

“So a lot of those amenities can work for both industrial and warehouse users,” Kaduce said. “We’re talking about walking trails and outdoor seating for industrial buildings, things you would have never talked about a few years ago.”

“You see office users turning office into industrial, or industrial feel,” Saxton’s Kim Augspurger said. “So you rip down the ceiling grid and the tiles. … Ten years ago we would have said this is an unfinished space, and now it’s move-in ready.”

Open office is open to reconsideration

Not all that long ago, the open office was all the rage. Interior walls were coming down, people could roam at will, possibly have a collision where new ideas, new possibilities would blossom from the bumps.

We’re still in open office mode, with a difference. Some offices sport telephone booths — oh, yes they do — for private calls, maybe a little reflective time. Neighborhoods are being created around areas of responsibility. Don’t forget that Hy-Vee Inc. created its own neighborhood in a Grimes warehouse where its creative tech types could work free from the furrowed broughs of the suit-and-tie crowd.

“Open space is distracting and noisy. So you know there are things you can do to help with that. But at the end of the day, private spaces are expensive and they’re not flexible,” JLL’s Kate Byus said. 

“As we surveyed our members, I think phone booths and lockers were the two things that people said they wanted the most. And the phone thing is real even though today’s workforce coming in doesn’t know how to make phone calls. Like they’ve just never done it. I think the key is having lots of alternatives so that people can figure out what is the best,” said Geoff Wood, founder of Gravitate Coworking. 

Get IT on the line

In a conversation about the fading away of desk phones, the importance of having the chief information officer involved at the beginning of preparations for an office move came up.

A lot of gizmos ultimately will make the trek from one location to another, so it’s a good idea to have the tech folks involved from the get-go. And it’s not just the IT department.

“The technology folks have to talk to the architects, who have to talk to the furniture folks. You know, to realize the potential of all this technology, you have to plan for it,” said Tim Hickman of Substance Architecture. “We used to have the architect plan the space and work with the broker. And then the furniture people came in separately, and the AV people. That doesn’t work anymore because everything’s working together in a exciting but also really challenging way.”

Kate Byus of JLL said all of the pre-planning points to the importance of project managers.

“These companies go through these moves once every five, 10 years. It might be the unlucky HR or IT person or somebody that is not necessarily well-equipped or have time in their busy workday to accommodate all of these factors that have to be planned for because they’re very expensive,” she said. “Outsourcing that with a project manager is really helpful, especially for big, complicated moves.”

In the doghouse


One guest at Newsroom 515 wanted to know what it was going to cost him to have a dog at work. Our panelists were in general agreement that although the time is coming, it might be too soon to worry about the expense; few landlords are allowing pets at work.

“We have started to see requests for that in Des Moines,” said Kim Augspurger of Saxton Inc., but few examples of it in action.

“I have seen dogs in offices. None of the institutional landlords are doing it yet, to my knowledge. I have seen Fortune 500 leases mandate it and landlords say ‘no.’ So we’re not quite there yet, but just like all the other coastal trends, I think someday we will see it,” JLL’s Kate Byus said.

Geoff Wood of Gravitate Coworking allows pets in the office.

“We’re dog-friendly. If you want to see dogs, come see us,” he said. “You saw this in multifamily. It used to be that dogs weren’t a thing. And then everybody started getting dogs, and so they’ve had to change. I guess all it takes is one large user that says, ‘We’re not going in unless you let dogs in’ to start changing that.” 

Adam Kaduce of R&R Realty, the largest property management firm in Greater Des Moines, said pets at work will become a property management issue.

“I think eventually we’ll find ways to make it work,” he said. “I shouldn’t commit us to anything, but I think the trend is probably taking place.”