By: Andrew Batson, Senior Research Analyst at JLL
Office construction is up 32% since last year, according to JLL’s new construction outlook. Of the 86.3 million square feet under production, tenant improvement (TI) – or the renovation of existing space – is trending.
In fact, there’s been a 14.2% increase in TI since the second quarter of 2013. Rather than building new properties from the ground up, landlords are looking to reinvent and fill vacant space.
Why? As construction, material and labor costs steadily increase, revitalizing existing space makes landlords more competitive and tenants more profitable.
For top takeaways from JLL’s new construction outlook report, download the report.
3 Trends Driving Tenant Improvement Trend
Three key trends have accelerated the push for TI, which JLL Research suggests might be “the key to attracting tomorrow’s workforce.”
1. A new generation reimagines the workplace.
As companies compete for millennial talent, TI projects are geared toward this generation’s preferred office style. In just five years, the U.S. workforce will be comprised of 50% millennials, which is more than all other generations combined. Millenials are transforming how the workplace operates, asking for more flexibility and new technology, as well as expressing overwhelming preference for collaborative office environments.
2. Urbanization fills vacancies in downtown areas.
Unique architecture and convenient location make downtown office buildings appealing to the modern workforce. TI initiatives bring older city office spaces back to life, with open, collaborative space. As companies rethink old digs, office space vacancies are slowly declining across markets. According to JLL research, vacancy has decreased by 10.2% since Q2 2011.
3. Technology transforms the market on a macro and micro scale.
Technology has reshaped how consumers and companies view brick-and-mortar space. Omnichannel strategies bring an additional layer of customer convenience to e-commerce, and turn retail centers into pick-up and return depots. Thanks to e-commerce, the need for industrial space with higher shelving and specialized features continues to grow.
Also significant on the tech-scene, technology companies have driven a complete cultural shift in the demand for trendy and cool office space. According to the 2015 Interior Design Trends Report, popular office designs include collaborative, multipurpose, and even playful workspaces, as well as bringing nature elements indoors and offering small private workspaces.
Construction Highlight: Pittsburgh’s Tower Two-Sixty
JLL’s Pittsburgh office is expanding its operations and preparing to relocate to the newly built Tower Two-Sixty, located in the heart of downtown Pittsburgh. The local team plans to relocate more than 350 employees to the state-of-the-art office in 2016.
The new space will parallel that of commercial real estate trend in tenant investments, including more collaborative workspaces and a workplace strategy that will enable better mobility for JLL employees.
Visit the website for more details.
Images courtesy of Tower Two-Sixty
JLL actively adapts to new trends and technology, offering JLL agents and brokers the same tenant improvement benefits that clients are enjoying across their markets.
Interested in learning more about construction and tenant improvement activity in your market? Visit the JLL construction trends and outlook (Q2 2015) SlideShare.
About the Author
Andrew Batson is Senior Research Analyst for the Michigan and Ohio region of Jones Lang LaSalle and is responsible for the publication of quarterly and annual research. Mr. Batson ensures that our clients receive the most thorough, timely, and strategic market information in a way that guides decision-making and identifies risks and opportunities. View Andrew’s bio or connect with Andrew on LinkedIn.