When Office Meets Hospitality: A Love Story

Can going to an office give you the same feeling as going to a hotel on vacation? Some commercial real estate players certainly believe so.

The rise of this hospitality-centric approach in CRE has been an ongoing conversation lately, especially in the office market, reflecting a shift to more experience-driven spaces. By incorporating high-quality services and touches, along with certain amenities and flexible layouts, work environments can support the work-life balance and cater to landlords’ need to attract tenants.

Presidio Bay Ventures, an investment and development firm with a CRE portfolio totaling 5.8 million square feet, is capitalizing on this approach. The San Francisco-based company is active in markets where there’s a walkable, bikeable community and where there’s density to support that, said CEO Cyrus Sanandaji. One of the firm’s core initiatives is to create greater flexibility and incorporate more hotel-like amenities in its office space offerings. In this interview with Commercial Property Executive, Sanandaji shares his views on this growing trend.

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Tell us about your current portfolio and how it reflects your approach to real estate development and investment.

Sanandaji: We’re focused primarily on larger mixed-use developments that often include a combination of high-density housing and commercial space, whether that’s office, R&D or retail, and a lot of public and gathering spaces, both public and private. We then layer on our management and experiential elements once the projects are built.

That’s been our primary key focus in the last five to six years as a company and that’s primarily driven by what’s happening in California and throughout the country, which is that we’re facing a severe housing shortage. We’ve reimagined how people commute and interact with work, postpandemic. And by doing so, emphasized a complete community in terms of being able to live, work and play all in the same area rather than having to rely on sitting in a car or bus or train and so on for hours of a day which takes people away from that work-life balance.

Our ethos is hospitable thinking. We’re trying to tap into this desire, this need that we’re seeing among our residents, our guests, our customers. They’re all yearning for experience and something differentiated.

This hospitable thinking, the more hospitality-focused approach in CRE, is a growing trend. How do you integrate it in your projects?

Sanandaji: I think that the early adopters who were leaning into this trend are going to see success. Our view is that today, when tenants have a tremendous amount of choice because of how much vacancy there is, are going to seek out unique experiences.

Real estate is not just an object. It’s an active partner helping our tenants run their companies, enhance the wellness, health and overall satisfaction of their teams. It plays a huge role in the employee-employer dynamic.

If we can create not just beautiful spaces, but functional ones that deliver a memorable experience, that changes the mindset. To us, it’s all about the people who occupy those spaces and how we make them feel about being there. If you can give them what they need and want, it will really make a difference.

What we’re calling flight-to-experience as opposed to flight-to-quality is our signature. We’re in the process of trademarking that now as the tagline of our management company, The Main Post.

READ ALSO: How Flight-to-Quality Is Leading the Flex Office Evolution

How have your tenants responded so far to hospitable thinking?

Sanandaji: You know, Springline is probably our most marketed project and has resonated in the industry and among tenants. When you look at that project and you speak to the tenants there, it’s obvious that our hospitable thinking is exactly what drove them to want to come and lease space in that building. It’s been our ethos for a long time, well before the pandemic. But the pandemic made it such that it was obvious that the human element is the most important factor in everything we do in real estate.

To what extent does this approach contribute to tenant retention and satisfaction, particularly in competitive commercial real estate markets?

Sanandaji: The retention component is yet to be seen because leases on the commercial side are at least 10 to 12 years long. On the residential side, we’re seeing it every day with a lot more renewals, as residential leases are one year long. The average in the market is about 50 percent of your building is going to turn over every year, which means the average stay is about two years. What we’re noticing is that average tenancy extends significantly longer and we believe it’s directly because of this.

The reason that the tenants are staying is explicitly because they don’t have alternatives in the market. Meaning that they’re excited about being there because it’s a unique offering. And even if a lot of other buildings and new construction start to do this, our view is that’s because buildings aren’t static, they’re a dynamic ecosystem.

Do you think you’ll soon see the same result as in multifamily, considering that commercial is typically a bit more volatile?

Sanandaji: When you look at lease absorption and the rental rates that we’re achieving in the office sector, it’s obvious that flight-to-experience is a significant factor in driving lease absorption. So our ability to fill up a building when the rest of the market is almost 40 percent vacant, in San Francisco for example, is significant. We also do extensive tenant surveys to gauge their sentiment and those have shown that the general satisfaction across a bunch of different variables is substantially higher than in the market.

Buildings where residents and tenants are experiencing this type of management are seeing substantially higher positive readings in terms of intent to renew. A lot can change in 10 years, but if we continue and regularly check back in with these surveys and have direct interactions with our tenants, and maintain that level of service, a renewal is certainly more likely.

READ ALSO: Growth in Office Tenant Costs Moderates

What are some specific features that make a commercial real estate space feel more hospitality-centered?

Sanandaji: Every building needs to be contextual and the design needs to be responsive to its surroundings. Ultimately, that means we must evaluate what offerings exist in and around the building and figure out what’s in demand, which is more of an art than a science. It’s figuring out what the community, the neighborhood and future target tenants are seeking.

Once we identify what that is, we start to incorporate the programming, so the actual amenity design, the layouts and also the service offering. It has to do with the design of the space itself, the furniture selection, the color palettes. It has to do with all the physical aspects, but the physical must be designed to be able to support the operations that are intended.

We generally look at these things in three categories. The first is community events engagement, that component of human connection. The next bucket is health, wellness and sustainability. Finally, there’s productivity. I say productivity is the last of the three in terms of importance because if you have the first and second, it’s guaranteed that you’re going to have a very productive and happy workforce.

Based on these three premises you mentioned, could you give us some examples of amenities you like to include in your projects?

Sanandaji: For productivity, we found that a lot of companies grow fast. They may not know what they’re going to look like in two or three years, what their headcount will be, what type of work they’re going to do. So, providing a flex offering is extremely important because it gives them the comfort that they can commit to signing a lease in the building. As their work and business evolve, they’re not hindered or stuck with that existing footprint that they’ve leased, they can flex up and down in other components of the building, whether that’s overflowing into a coworking space or leveraging a conference center.

On the health, wellness and sustainability side, there’s a lot of focus now in society on your health, whether it’s mental health or physical health, and tracking that is important. We have implemented a series of technologies into our buildings including smart sensors that measure indoor air quality, carbon monoxide levels, temperature levels, humidity levels, all the things that actually could affect people—especially if you consider living in Northern California, where wildfires are unfortunately a thing we have to deal with.

READ ALSO: The Office of the Future

We also have custom apps for the projects, where tenants and their employees can look and see the power consumption in their space, the water consumption, or how much solar we’ve generated that day. It’s giving our tenants the ability to see their actual impact on the environment and the impact of the building on their health, as well. Another more obvious example is that we have a full spa and fitness offering to make it feel like you’re at a hotel or a nice country club.

On the community side, we’re looking to bring not just the tenants within the building together, but also people from the area, vendors and partners, and create unique experiences. We have speaker series, like TEDx-type talks, product launches and beer and wine tastings with featured partners of ours. We also bring in a mobile pet grooming truck and we tell everyone to bring their dogs to work. Things like that give people a sense of community.

And last but not least, what’s next for Presidio Bay?

Sanandaji: Now we have a great opportunity to buy distressed and existing buildings or projects below replacement cost. We’re being very aggressive and buying these assets and implementing this strategy in the long term. At the same time, we’re also spending the time entitling and designing a lot of these projects and that’s allowing us to have a lot of projects shovel-ready for when the economy does come back and development is once again viable.

We have an opportunity here to essentially fill our pipeline for the next five to 10 years by doing this. To me, that’s the focus and that’s going to be our focus for the next two to three years. Thereafter, we’re going to buy or invest in development and ground-up development.

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