The flight to quality? In the office market, it’s very real.
Here’s an example: In the city of Westlake, Ohio — about 16 miles from Cleveland — the Convergent Class-A office building reached full occupancy last year, during the height of the COVID-19 pandemic. Tenants include IMCD and Huntington Bank.
What happened here? Quality. Owned by Equity Trust Company, Convergent brought 60,000 square feet of new and modern office space to the market. And this project is the first certified FitWel office development in Northern Ohio.
This designation denotes buildings whose owners have committed to boosting indoor air quality and providing a healthy workspace. Convergent earned its FitWel designation partly because of its state-of-the-art HVAC system and high-quality air-filtration systems.
And Convergent isn’t an isolated example. JLL says that 67% of the tenants committing to new long-term office leases in the Cleveland market are upgrading to higher-quality office spaces.
This includes companies looking for not only healthier working spaces for their employees, but high-end amenities and perks, too. For instance, the office space at 1300 E. 9th St. in Cleveland features an on-site golf simulator. The Fifth Third Center office building in downtown Cleveland boasts its own fitness center, on-site dining and attached parking. And Key Tower in downtown Cleveland has a WiFi-enabled outdoor pavilion and on-site barber shop.
Thanks in part to these amenities, these higher-quality office buildings are performing better than Class-B or Class-C space. Many companies that are making moves are buying space at office buildings that they might not have been able to afford before the pandemic.
Many can afford this space because they are embracing hybrid work. They now need less office space for their workers and can splurge for smaller footprints in better buildings.
J.R. Fairman, senior vice president and office specialist with the Cleveland office of JLL, said that COVID is part of the reason for this flight to quality. Companies need to entice employees back to the office. Offering them a healthier place to work, one with top amenities, is one tool that can help.
“A lot of firms since COVID have decided that they need to make a change in their office space,” Fairman siad. “If they are going to make that change, many are going with a higher-quality space. In Cleveland, we’ve seen that while some tenants have vacated or are shedding office space, this has been offset in part by tenants taking advantage of a flight to quality.”
What isn’t happening, though, is a complete abandonment of office space, Fairman said. It’s easy to read headlines today and think that every office worker today wants to work from home. But that’s not true, Fairman said.
“Working from home is not conducive to everyone,” Fairman said. “A lot of companies are building in the flexibility that allows their workers to work from home part of the time. But they still want to create that collaboration and in-person time. So some employees might come in three days a week and work from home two days.”
Not all companies, of course, are handling the return to the office in the same way. Many smaller and regional companies have already brought most of their workers back into the office. But many larger national firms have not.
This isn’t just a trend in Cleveland, but across the country.
“It is very hard for the bigger companies to create a plan,” Fairman said. “You have different restrictions in different municipalities. It can create issues when you tell employees that they need to be in the office in Cleveland three days a week but in your San Francisco office, most employees are still working from home.”
At the same time, different submarkets are seeing more office sales and leases today. Fairman points to Beachwood, a suburb of Cleveland, as a submarket where office demand is on the rise. Westlake, another Cleveland suburb, is also seeing more demand for office space, Fairman said.
And while COVID has certainly hit the office market hard, developers are still building new office space in the Cleveland area, Fairman said. This includes a new 125,000-square-foot office building in Independence, Ohio — another suburb of Cleveland — that has already attracted new tenants.
While it’s true that the Cleveland-area office market isn’t as strong as it was before the pandemic hit, there are signs that the sector is slowly recovering, Fairman said. Fairman says he sees more people walking through downtown Cleveland today. Finding a parking space is more challenging again in the parking garage he uses when he drives to the office. Summertime events are again taking place in downtown Cleveland.
“Some of the employers are saying that now is the time to come back to the office,” Fairman said. “People feel safe again. Companies are telling their workers that they want them to come into the office two to three times a week again.”