The case for single-story office properties
The hierarchal class system that exists in the office markets across Chicago and the suburbs needs to change.
For decades, commercial real estate brokers, developers, investors and, to a lesser extent, tenants have designated office buildings according to a Class system. Depending on variables, buildings are considered class A, B or C. The newer the building, the better its location and the greater the mix of amenities, the higher the building class.
According to CoStar, the inventory of 3,128 office buildings in the Chicago area totals 284.7 million square feet, including downtown and suburban properties. Of that total, 470 buildings totaling 157 million square feet are considered to be class A properties.
Not one is a single-story building.
Some would argue there is a bias against single-story office properties. By definition they aren't considered class A. They don't typically have amenities like a fitness center, shared conference rooms and/or coworking spaces. The perception is that these buildings are for back offices and local businesses, not satellite offices of Fortune 500 firms.
The hierarchal building class system has served the market well, until today. Tenants increasingly are looking for an experience that is both first class and safe. In today's changing work environment there is increased life safety and security that comes with the lack of a common lobby, shared elevators and public restrooms.
As owner of Concourse Chicago, a 165,000-square-foot office complex in the O'Hare office market, I understand it may be a losing battle to classify a single-story building/complex class A. The more compelling argument is that a single-story office building can more easily achieve the status of first class by the overall experience and value it provides to those who matter most, its tenants.
Concourse Chicago along with our other single-story properties seek to provide a first-class experience and compete directly with the neighboring class A multistory buildings. At Concourse Chicago there are 12 buildings spread across seven acres, with plenty of green spaces that have been populated with picnic tables, fire pits, public art and even an outdoor conference room.
Concourse also offers tenants free use of multiple conference rooms and coworking spaces, a fitness center with private showers, a shared bicycle program and a complimentary coffee bar.
Another element that generally works against single-story office buildings is a perception of being old and outdated. Yet it is clearly possible, with planning and an appropriate investment, to replicate some of the experiential offerings found in class A multistory buildings.
And what is commonly overlooked is that single-story buildings are in the same markets -- even the same block -- as class A buildings. Single-story buildings share the same area amenities such as access to shopping centers and restaurants, expressways and public transportation ... but at a price 20-40% lower than class A competitors.
In addition to emulating those amenities, single-story office buildings, like Concourse, offer a number of other unique features that tenants find beneficial and class A multistory buildings can't provide. We call these features the SAFE experience:
• Safety: As we navigate through COVID-19 and beyond, there is an increased awareness of the significant risk and inconvenience that comes with navigating through a common lobby, shared elevators and shared public restrooms. It is a distinct health-safety advantage to have private and exclusive 24/7 control over HVAC systems. Finally, the private entry to each suite provides quick access from the well-lit open-air parking lots. Simply put, single-story properties offer tenants of multistory buildings a safer and easier way to social distance and go back to the office.
• Affordability: Single-story properties such as Concourse Chicago (at a rental rate of $27-$30 PSF gross) are more affordable than neighboring class A buildings (such as Presidents Plaza at a rental rate of $45-$50 PSF gross).
• Features: Single-story buildings offer tenants several unique features such as operating windows, internal skylights, private bathrooms and solar panels. Often they also offer walkability and access to green space right out the front door -- something even more important today.
• Efficiency: In a typical class A or Class B office building there is a common area loss factor that averages 10-20 percent. The common areas include lobby and amenity space, common corridors, public restrooms, elevators and stairways. In contrast, in a complex such as Concourse Chicago the loss factor at 3% is only a fraction of class A buildings.
These characteristics often don't even make the list of class A amenities.
As companies look to offer a safer experience for their employees while wanting to have more control and flexible options within their office space, a single-story office environment is getting a new look from companies.
COVID-19, like 9/11, will significantly change the office market landscape along with the perception and value of the single-story experience. As it does, it may help to change the hierarchal class system that exists.
The first-class experience provided at upgraded single-story properties like Concourse Chicago is every bit, if not more, the experience tenants now desire. That first-class experience is available more economically, and more safely, than ever before in a first-class single-story property and not a Class A building.
• Jonathan Berger is the founder of Berger Asset Management, the owner of Concourse Chicago, a series of 12 single-story office buildings in the suburban O'Hare marketplace.