Tenants expect that any new, glassy office tower will bring with it a suite of amenity offerings. But what about those attracted to smaller loft office buildings? It turns out that these chic assets are increasingly setting aside space to lure in office users.
Tenant lounges, for example, have become a given in any ground-up Class A office project. Owners and developers know that users are attracted to properties that allow them to maximize their leases. If the building offers an area where individuals can get a change of scenery or unwind, that’s space that the tenant doesn’t have to dedicate within its footprint for its own employees.
Located in Chicago’s River North neighborhood, 213 West Institute Place in proof that this concept can scale down for a smaller format property. KBS recently completed a multi-million-dollar repositioning of the seven-story, 155,385-square-foot loft office building that included, among other upgrades, a spacious tenant space.
“Our portfolio is mainly made up a Class A office towers, so we know how prevalent these spaces are within those buildings,” said Dan Park, senior vice president, acquisitions asset management for KBS. “We thought this would be a good application in a loft office space as well. In looking at the competitive set it’s not prevalent, so why not be first movers and do it do it really well?”
Built in 1888 for the Gormully & Jeffery Manufacturing Company, the property once churned out “Rambler” brand bicycles. That history helped inspire the design of the space. RATIO|smdp performed architectural duties for the project, with Tydings Design doing interior design work on the new amenity space.
“We’re excited to offer this 2,000-square-foot tenant amenity lounge and we really gave it a flair too that helps it fit the building,” said Park. “It’s a really creative office building and we thought this would be a great addition for the property.”
The project came about when one of the building’s tenants, Haute Living, wanted to expand into a portion of a ground-floor retail space. Once demised, the building was left with an unoccupied area that was ideal for a tenant amenity space. Haute Living also sourced much of the furniture that went into the space.
Harkening back to the property’s heritage, a bicycle motif runs through the lounge. That homage is particularly strong in the apropos bike storage area in the building’s basement that KBS built out along with the tenant lounge.
On paper, the economics might seem off. Is setting aside a portion of rentable square feet in a building of this size the right play? According to Park, the amenity space is a very strong enticement to the types of tenants that are drawn to properties like 213 West Institute Place.
“We find that the tenants in loft office buildings usually opt for an open space plan. While that layout is productive for their work environment, sometimes it can be noisy and chaotic,” Park said. “By offering this tenant lounge, it provides a space for those employees to just take a break and maybe enjoy some quiet time on their own throughout the day.”
River North is an oddity in the Chicago CBD. Once the domain of turn-of-the-century industrial buildings like 213 W. Institute Place, the submarket transformed into a chic loft office destination. In recent years, the neighborhood has evolved further with the addition of several new Class A trophy office towers.
Though the neighborhood’s character is still largely defined by loft office assets, this new diversity attracts both traditional and unconventional office users, leading to the submarket’s perennially low vacancy rate. However, according to Colliers International’s first quarter report, River North actually saw its fundamentals take a downturn.
The submarket reported 172,903 square feet of negative net absorption during Q1 2020, per Colliers data. This has resulted in a vacancy rate increasing to 10.3 percent from 7.8 percent in the previous quarter and a year-over-year rise from 8.3 percent.
The COVID-19 outbreak has of course thrown a lot of uncertainty even on those numbers. But eventually, the pandemic will pass, and office tenants will return to life approximate to normal. And when that happens, many will no doubt be on the hunt for a building that offers loft office charm but all the amenities of a 50-story tower.