Even though many of us are looking at the COVID-19 pandemic in the rearview mirror, it’s still wreaking havoc on the commercial market, particularly for older, commodity-like buildings. Major corporations that control large office buildings were hoping that once the virus had waned, staff would come back to in-person work in droves. Alas, so far, that has not seemed to happen. We’re in the age of hybrid work now, and while workers have come back, it’s certainly not five days a week. Overall office occupancy teetering at only half capacity on the best of days. Coupled with interest rates creeping higher and a looming recession prompting companies to announce one wave of layoffs after another, office buildings are facing value destruction of an estimated $453 billion.
Despite this bleak outlook, office buildings will not be going extinct. They are more than just steel or concrete shells where people show up to do their jobs; they’re literal banks of social capital for the employees who work there. But since COVID capsized the office market, office building owners have had to get creative with their portfolio in order for their buildings to excel in a wonky economic landscape. Outside of fully converting the building into a residential dwelling, office owners are embracing the public realm as a value-add and transforming their buildings into community hubs.
A place of action
The philosophical shift in understanding that what’s outside of an office building is just as important as what’s inside the building can also be referred to as placemaking. This term is typically used to describe cities that want to humanize urban land by creating gathering places for their citizens, such as strategically-placed greenscapes, art installations, or bike paths. Placemaking is a collaborative process by which we can share our public realm in order to maximize shared value, strengthening the bond between people and the places they share. People are motivated more than ever to reinvent public places, and offices are an important part of that discussion.
Major industry players already understand the value of placemaking as the best approach to address the current market demand for working spaces that are amenitized, immersive, and fulfill the changing needs of contemporary residents, office renters, and even tourists depending on the area. It’s exactly what drove Blackstone to pour an eye-gouging $500 million into redeveloping the Willis Tower into a skyscraper that elevated downtown Chicago. Willis Tower was not stuffed with amenities only for its office workers; it welcomed both residents and tourists with amenities like a 1-acre public park and a glossy new retail space.
RXR, a real estate development, management, and investment firm, has also positioned placemaking as a key component of their business strategy for some years now, having earned the role of Master Developer of New Rochelle, New York’s downtown revitalization in 2014. By 2022, RXR had 1,250 residential units for a total of about 1.6 million square feet, creating new homes for people attracted to the company’s luxury rental buildings at a price point that was much more affordable than what’s available in nearby New York City. At the same time, RXR leveraged the success of its developments to benefit the local community through job training and local hiring, working with local small businesses, supporting different youth programs, holding community events, and more.
In the office sector, RXR has made strategic collaborations with occupiers to transform their buildings into spaces where employees would enjoy being in so much that they would “forget” they were at work, which is exactly what occurred at Starrett Lehigh, located in the Chelsea neighborhood of Manhattan. Originally built in 1931 as a freight logistics facility, the building has undergone several capital improvements to evolve into a Class A office building with over 2.3 million square feet. In addition to renovations that have reduced the building’s carbon footprint by more than 25 percent, Starrett Lehigh now boasts 100,000 square feet of amenities across 20 destinations within ten floors, including the new restaurant Hav & Mar from acclaimed celebrity chef Marcus Samuellson, a new culinary market, a world-class fitness center, and more.
RXR’s placemaking approach is establishing communal areas from which everyone benefits, regardless of whether they reside nearby or work at the asset. RXR’s placemaking approach is effectuated by integrating on-site team members called RXO’s (Residence Experience Officers) at every property dedicated to elevating the tenant experience through various events, internal and external community development, ongoing volunteer opportunities, and more. The RXO teams are also responsible for activating communal areas from which everyone benefits, regardless of whether they reside nearby or work at the asset. “Placemaking’s purpose is to bring people together to have an experience,” said David Garten, RXR’s Senior Vice President of Corporate Affairs. Garten explained to me that from a real estate perspective, office assets are beginning to be recognized as a value-add for the surrounding community. “In many ways, placemaking creates a self-reinforcing cycle in terms of a positive return of bringing employees back, but we recognize that office buildings are part of a larger ecosystem. What we do in terms of the investment within the building should be consistent with trying to benefit the local community as well,” he said. For Garten and for RXR, buildings will remain an important component of the company’s portfolio. As Garten puts it, “it is those well-located, highly amenitized office buildings that are integrated into the community that will thrive in a post-COVID environment.”
The biggest example of placemaking being put into action is the recent push to open up streets to pedestrians and cyclists. Early on in 2020, NYC quickly (albeit in a disorganized fashion) opened the streets to bicyclists and pedestrians. Right-of-way adjustments, which often need months of planning, happened quickly because of the need to interact outside and the sharp decline in downtown traffic. Through these changes, European-style open streets became more prevalent in the city that never sleeps.
In 2020, the Meatpacking Business Improvement District (BID) adopted an open streets project as part of a New York City trial program. Open Streets involved blocking vehicular traffic to make way for pedestrian thoroughfares, essentially a commercial block party that takes place on a regular schedule. As part of the city’s goal to make its Open Streets initiative a permanent fixture, modular installations that serve as both a biophilic art installation and a barricade transformed six blocks of the Lower Manhattan neighborhood.
At the time of the program’s launch, BID Executive Director Jeffrey LeFrancois was ready to get an earful from a plethora of businesses angry that the stoppage of vehicular traffic was ruining their income stream. Instead, he got the opposite. “They loved it! These streets were built to support giant delivery trucks, but now that we’re able to make these streets feel more like a plaza, businesses have actually seen more foot traffic.”
Admittedly, the reignited Meatpacking District is a much more pleasant place to frequent, as I got to see the hustle and bustle myself recently. Every morning, a crew comes into the district to move the barriers and outdoor furniture (set out by the BID to encourage pedestrian activity) to make way for the trucks LeFrancois was talking about, and every night, a crew comes in to move everything again to turn the streets into an urban village. The BID also has contracts with a sanitation crew to keep the streets sparkling and a landscaping team for the plant-laden barriers. The collective effort literally makes a night-and-day difference in the experience.
LeFrancois told me that the district continues to be excited and is diving further, really getting into plans on improving and greatly growing upon their Open Streets program, especially now that a new plaza just south of the Whitney Museum is expected to come online. This is part of the BID’s recent Western Gateway Report and Public Realm Vision, a comprehensive plan detailing recommendations to improve the far west side of the neighborhood, an area that has seen a sharp increase in foot traffic, by making the area more easily navigable for pedestrians.
While the benefits of the Meatpacking’s open streets program are hailed as revolutionary for retail, LeFrancois points out that the benefits are equally applicable to office buildings. “If you want people to come to your space, like office owners who are trying to get their employees to come back to work, the space and neighborhood has to inspire people.”
Office spaces were put to the test by pandemic-induced economic shock waves and hybrid work schedules, resulting in emptier buildings. But the tug-of-war to get people back in the office and bring office property values back up is still ongoing. In an effort to showcase the real value of these buildings, the office sector is starting to rethink how buildings and developments contribute to and improve communities by fostering a vibrant sense of place that excites the people who use it.