Multi tenant Strategy RESEARCH + RECOMMENDATIONS
Benefits + Challenges
SOURCE: HTTPS://BINARYSTREAM.COM/BLOG/A -GUIDE-TO-SINGLE-TENANT-VS-MULTI-TENANT-COMMERCIAL-REAL-ESTATE-FAQS- ANSWERED/
The benefits of multi-tenant commercial properties
Low risk of complete vacancy Steady income from diverse portfolio of tenants
Current tenants benefit from scalability Shorter lease terms provide flexibility
The challenges of multi-tenant commercial properties
Potential loss of branding opportunity
Increased duties and responsibilities Tenants expect to sign a gross lease
Frequent tenant turn over
Higher maintenance costs
Physical and data security management
Questions to Consider
Who is your ideal tenant, or what is your ideal mix of tenants? How does their brand align with PNC’s?
What are your ideal tenants looking for in an office space?
How might you successfully position your building to be more competitive in the market?
What is your building’s unique selling point?
SOURCE: HTTPS://COMMERCIALOBSERVER.COM/2022/08/NEARLY-HALF-OF-COMPANIES-CUT-OFFICE-SPACE-SURVEY/ 19%
National office vacancy rate reached a 30-year high in Q4 2022
A survey of 250 U.S. companies found that nearly half plan to reduce office space in the next 12 months 59% of those companies plan to shrink office space by more than half 23% current vacancy rate in Pittsburgh in Q1 2023
SOURCE: HTTPS://BUTTERFLYMX.COM/BLOG/TENANT-EXPERIENCE/
of investing in the tenant experience + Increased loyalty + Higher occupancy rates + Longer-term leases + Premium price-persquare foot pricing
What Do Tenants Want?
Top Building Amenities Firstside might leverage:
+ Daycare
+ Cafe and servery
+ Wellness clinic
+ Access control (security desk and turnstiles)
+ Large atrium and concourses could be activated for tenant lounges
+ Direct proximity to public transit
+ Parking access
+ Direct access to major highways
+ Proximity to public park
+ Water Views
Additional top amenities to consider:
+ Fitness center
+ Conference center
+ EV charging stations
+ Free parking
Source:https://www.buildingengines.com/blog/buildingamenities-for-tenants-2023/
What Do Tenants Want?
Research shows that by 2025, properties that incorporate a diverse roster of amenities will experience 12% higher demand from tenants versus their plain commodity counterparts.
Source:
https://www.us.jll.com/en/views/threeamenities-owners-are-adding-to-office-buildings
What do tenants want?
+ Flexibility
+ Higher-density offices with communal and open space
+ Designs that allow for centralized support services (copy/fax, kitchens, mail)
+ Top-tier amenities
Source:
https://www.ccim.com/cire-magazine/ articles/what-office-tenants-want/
General Sub-leasing Considerations
Evaluating Lease Approaches
Weighing Priorities
Maximizing sub-lease value vs. employee experience
Standardizing Suites for Leasing
• Day light for every suite
• Minimum size
1. Rent “as is” including furniture
2. Lease with “bring your own” furniture
3. Make major building improvements to compete for class A tenants
4. No lease and make general investments to improve employee experience/increase occupancy
Entry Sequence and Services
Separate tenants entrance/reception vs shared lobby
• Parking capacity
• Parking allocation for tenants Parking and Access
KEY CONSIDERATIONS
Building Entry
OPPORTUNITIES
• Lobby as shared destination: Common entry point with shared reception, lobby, elevators & restrooms
• Lobby as brand asset: Showcase PNC at main entry point, with separate access point(s) for sub-tenants
CHALLENGES
• Unfettered access to atrium stair
• Elevator banks to be controlled
• Floor openings, potential access between levels
• General vertical circulation at egress stair
• Additional restroom fixtures required on Firstside 5th floor with any required permitted work
• Possible ADA upgrade requirements with permitted work
• Data security separations and addition of more MDF/IDF closets
Stacking & Linkages OPPORTUNITIES
• Efficiency: Existing multi-tenant floors serviced by centralized support (restrooms, etc.)
• Flexibility: Existing modular wall systems, raised floors, “plug & play” options allow tenants to customize
• Connectivity: Wider paths, open/visible circulation between floors, and shared amenities
• Existing suites could accommodate tenants of various sizes
• Large contiguous floor plates
• Close to move in ready tenant suites (no pantry or lack of enclosed rooms for meeting space and/ or offices)
CHALLENGES
• PNC increase in return to office
• Access to natural light due to planning depths
• Cost of tenant improvement to modernize space for class A market
• Data security separations
Amenities & Common Areas
OPPORTUNITIES
• Existing amenity areas such as cafe, daycare and wellness clinic could be leveraged for multi tenant use
• Large atrium and concourse areas that are easily separated from multi tenant suites or floors could be activated for tenant lounges and pop up amenities
• Large ground floor street facing circulation concourse space could be repositioned to revenue generating retail
CHALLENGES
• Sharing amenities would create both security and logistical challenges
• Large atrium and concourse spaces would increase to loss factor for rentable square foot calculations
• Adding additional amenities such as a fitness or conference center would be a premium construction cost
• Need to cross a major four lane highway to access restaurants within a walkable distance
Amenities & Common Areas
Current Suite Build-out
CHALLENGES AND OPPORTUNITIES
CHALLENGES
- Limited open collaboration space
o Mostly enclosed meeting space, not equally distributed among suites
o Tenant may want to modify set-up
- No traditional enclosed offices
- Limited shared amenities/pantry space on floor
- Access and security challenges
o Access control required at open stair and elevators
o Open atrium may require acoustical/visual separation
- Supply/print rooms: tenants may require their own dedicated print/supply rooms (vs centralized on floor)
OPPORTUNITIES
- Furniture already in place to be used by tenants
- Flexible partitions allow for “low cost” modification of suites
- Could accommodate tenants of varying sizes
- Open floor plate for optimal daylight, views to outdoors
- Light wells allow for increased access to "borrowed" natural light
Local Pittsburgh Market Considerations
Flight To Quality
SOURCE: HTTPS://WWW.CBRE.COM/INSIGHTS/BRIEFS/FLIGHT-TO-QUALITY-TREND- APPARENT- AS-TOP-TIER-OFFICE- ASSETS-OUTPERFORM
+ Rents have risen for top-tier office buildings and fallen for lower-quality properties since 2021. + Rents for top-tier office buildings increased by 3.8% in 2021 and by 6.7% through Q2 of this year.
+ Rents for lower-tier buildings fell by 3.4% in 2021 and by 1.1% so far this year.
Pittsburgh CRE Market Outlook
“With a quarterly net absorption of negative 659,280 square feet and a vacancy rate of 23.4%, it is becoming clear that the market will take a substantial time to rebound"
The core of the Pittsburgh area is the central business district (CBD). For all classes of buildings, the total vacancy rate in 2023’s first quarter was 20.2 percent, with a net absorption rate of -0.7 percent.
For just Class A office buildings the rate was a little lower at 17.5 percent. But the net absorption rate was worse at -1.0 percent.
Source: https://www.alleghenyinstitute.org/office-vacancy -rates-continue-to-climb/
Downtown office-to-residential conversions may help to tighten the market for commercial office real estate
Source: https://www.pittsburghmagazine.com/downtown-pittsburghreimagining-a-more-vibrant-neighborhood/
SOURCE: HTTPS://WWW.RESUMEBUILDER.COM/9-IN-10-COMPANIES-WILL-REQUIRE-EMPLOYEES-TO-WORK-FROM-OFFICE-IN-2023/
66% of employers currently require employees to work from office
90% of companies will require employees to return to office in 2023 21% of companies will fire
Repurposing Strategies & Alternative Space Use
+ Full or partial conversion to residential
+ Self Storage + Boutique gyms
+ Co-working space
+ Classroom space for microschools
+ Office space for time-share office tenants + Start-up incubators
+ Short-term lease space for off-site meetings
Background:
525 William Penn Place Pittsburgh
+ Constructed in 1951 for Mellon National Bank and U.S. Steel Corporation
+ 41 floors
+ 950,000 sf office space + 23,000 rsf floor plates
Capital improvement plan:
+ New lobby and two-story glass façade + New, best-in-market tenant lounge + New, best-in-market executive fitness center + Business center and café + New, executive parking garage
Images and brochure: https://525wpp.cbre-properties.com/
Amenities include:
+ "Luxurious, first-class premium lounge" for tenants and visitors at the mezzanine level, adjacent to lobby
+ 7,000 sf "state-of-the-art" fitness center exclusive to tenants
"An iconic Pittsburgh high-rise transformed into a modern space with market-leading amenities."
Images and brochure: https://525wpp.cbre-properties.com/
Background:
+ Developed by Equitable Life Assurance Society, constructed 1950-1969
+ High-rise complex with 1,500,000 sf office space in four buildings
+ 25-story 3 Gateway Center to be converted to 300+ unit apartment complex
On-site building amenities:
+ Parking garages
+ Conference facility
+ Fitness center
+ Tenant lounge
Project images: http://www.pittsburghgatewaycenter.com/amenities/
Citizens Bank downsize:
+ Citizens Bank to vacate 525 William Penn for smaller footprint in Four Gateway Center
+ 150,000-100,000sf ---> 60,000 sf for 500 employees
$5 million investment in tenant upgrades:
+ New lounge
+ Training Center + Meeting & conference rooms for tenants
+ New fitness facility with locker rooms
+ Renovated lobbies with WiFi and new seating areas
+ Collaboration spaces
+ Coffee shop
Project images: http://www.pittsburghgatewaycenter.com/amenities/
Background:
+ Developed by Oxford Development, constructed 1983
+ 46 floors
+ 850,000 sf office space
+ Five-level urban plaza + 840 space parking garage
Amenities Include:
+ On-site food court
+ Fitness center
+ Sports bar
+ Parking + Bank
+ Common areas & amenities "designed to appeal to progressive and modern technology firms"
Sources: https://www.oneoxfordcentre.com/amenities-services/
1. Would this mean the name PNC First Side Center will change?
2. Would PNC want to make investments to position as higher-end building to potential tenants?
• (Building perception in market: current use is as a service center/back office type building that is located on the fringe of downtown.)
3. Is conversion to a different building type an option?
• In January, Pittsburgh announced it was accepting proposals to produce more affordable housing through the “conversion of fallow and underutilized office space.”
4. Does it make sense to invest into amenities and plan for future higher in-office ratios?
• Instead of conversion to multi-tenant and space compression
Milwaukee, WI case study 01
Chase Tower
• 22-story, 477,772-square-foot building, 111 E. Wisconsin Ave.
• The firm wants to “reposition the asset in order to increase occupancy.”
• To draw more tenants: renovated lobby, first-floor fitness center with locker room and showers, a high-end tenant lounge with a fireplace, and a shared conference and training room.
• It housed the headquarters of Marine Bank, which in the 1980s merged with Bank One which in turn was purchased in 2004 by Chase Bank.
• Chase Bank serves as its anchor tenant. Other tenants include Empower Retirement, Infinity HealthCare and WUWM-FM.
Sources: https://www.jsonline.com/story/money/realestate/commercial/2023/03/29/chase-tower-one-of-milwaukeesoldest-office-towers-getting-makeover/70059310007/ https://urbanmilwaukee.com/2023/03/30/eyes-on-milwaukeechase-tower-receiving-new -amenities/
Marathon Oil Tower
• Successfully converted several years ago from a single-tenant net-leased 1.1 million-sf, 41-story office building to a multitenant facility.
• Original building constructed in 1983.
• Renovated in 2019.
• Three floors upgraded with “curated amenities.”
• New lobby lounge features a coffee bar, collaborative seating zones, and large media wall.
• First floor is now a food-hall style café.
• Third floor is a full-service fitness facility with stateof-the-art equipment.
Sources: https://www.ccim.com/cire-magazine/articles/caseconversion/ https://www.commercialsearch.com/news/makeover-ofhoustons-1-2-msf-marathon-oil-tower-revealed/
• Original 40-story building, First National Bank Tower, completed in 1972.
• Renovated with goal to “re-establish its grandeur and retool it to support modern workplace culture.”
• User experience at the forefront.
• Efficient floor plates and “excellent expansion capabilities.”
• “World-class amenities” include activated outdoor areas, redesigned lobbies, new conference facility, on-site food hall with coffee shop and wine bar, state-of-the-art fitness center, tenant lounge.
Sources: https://www.wellsfargocenterportland.com/
Fargo Center
Portland, OR