Commercial: The Real Value of “Class A” Space
September 21, 2016
Senior Vice President, Cresa Phoenix
There is a sea-change that has been slowly evolving in Phoenix metro and the U.S. with respect to the “Class A” office workspace culture. Class A is typically viewed as a higher-end, more expensive space — luxury in the commercial world. Some may argue that Class A space cannot be defined as easily when comparing it to all of the other workspace classes. I believe they’re right — so let’s digress.
With the recent upward trend in our economy, corporate real estate decision-makers are asking more questions about the growing strength of the Class A office market. These questions are typically prompted by the steady fall in vacancy rates as well as the increase in lease rates for this space.
What’s the worry? U.S. corporate facility costs are typically the second highest expense after salaries & benefits. When decision-makers notice a rise in rental rates, they immediately become more focused on their facility expenses. However, recent studies show that Class A space, or an upgraded, collaborative working environment, is known to provide hidden benefits that can actually save the corporation expenses overall. A more enjoyable environment is known to support employee retention. When viewing facility costs from this perspective, the financials may be very different.
The shift, or sea-change, is now moving toward how employees “cohabitate” in office spaces versus the cost of the space itself — regardless of “Class.” Facility expenses continue to be a critical component of the corporate budget. However, Human Resource Directors are becoming more vocal about the high costs associated with turnover, recruitment and onboarding new employees. The environment where employees work every day effects retention; now is becoming a factor used in the corporate, expense equation.
Phoenix Metro Rent Trends
Arizona’s high quality of living and lower overall business costs is not new information. As most Phoenicians and U.S. corporate executives may know, the Phoenix metro market has historically been one of the most reasonably priced Class A office markets in the nation. Phoenix metro rarely dips too low in vacancy to create wildly, high rent spikes compared to other notable U.S. markets. As a result, corporations are drawn to our market compared to other states.
The office design trend continues to be contemporary and creative – open spaces that promote a more productive, interactive work environment. Although some may think that the contemporary design is only for the advertising or technology industries, the answer couldn’t be more different. Corporate leaders from various industries including finance, engineering and even law firms are looking for these spaces for their companies — even when you consider our conservative corner of the world here in Silicon Desert. Less private office space is the demand. Additionally, the surge of technology companies moving to Phoenix metro, such as Uber, Weebly, AllBound and Zenefits is changing the way most local corporate leaders view work environments in the Valley.
Features such as natural, green building materials, sofas, color and community tables have become more commonplace in the new, office environment to cultivate happier employees.
The Bottom Line: “Class A” space is valuable in today’s workplace. Whether corporate decision-makers select a Class A facility, as defined by the commercial industry, or create a “Class A” environment using interior upgrades, the benefits for employee retention effects the bottom line. The Phoenix metro commercial market supports all options making the Valley an attractive place to conduct business.