To win the war for talent in a post-pandemic environment, employers and landlords will seek to provide highly amenitized spaces that will lure workers away from their homes. But it remains to be seen how that expense will be paid for—and whether lenders will give due credit to those amenities when determining property values, a panel of four experts in U.S. office markets concluded during the ULI Virtual Spring Meeting.

Jonathan Brinsden, ULI Americas chairman and president of Irvine Company Office Properties, based in the Los Angeles metropolitan area, led the discussion. He was joined by Clare De Briere, executive vice president of Skanska USA Commercial Development; Neville Rhone, managing partner of Los Angeles–based Arc Capital Partners; and Daniel Ismail, senior analyst for office at Green Street, a commercial real estate research and consulting firm.

Rhone said he knows who will bear the increased cost of tenant improvements: “Without a doubt, the landlord is paying for it. The tenant has all the negotiating power.” Panelists noted that equity investors may better understand the value of these improvements than lenders will.

De Briere says she anticipates that tenants will want to lease the same amount of space, or more, to allow for increased amenities. But tenants may seek those larger footprints in smaller properties, which allow a single occupier to control the entire work environment, especially if it provides health-related amenities such as indoor/outdoor access and operable windows. The new office building might be 300 square feet (28 sq m) instead of 1 million square feet (93,000 sq m), she speculated.

Popularity of highly amenitized spaces raises other questions. Are rents in the suburbs, which attracted increase attention during the pandemic, high enough to recoup the investment in amenities? Brinsden asked whether suburban office nodes extending along spokes from the central business district hub can be developed in a way that replicates the attractions already found in downtown urban cores. And how will the role of transit and commute times play into employee and employer decisions about where to work? Brinsden noted that one reason workers often cite for not wanting to work in an office is the commute involved. They like being in the office, but they also like getting that commuting time back for other uses, he said.

Ismail agreed about the perceived value of commute time, adding that “proximity to transit will be viewed as an asset.”

But Rhone warned that transit facilities need to managed so they do not attract problems, such as homeless encampments, that can turn facilities into a liability. He said that as soon as urban cores are perceived as affordable, safe, and healthy, “people move back in droves.” When that happens, he asked, “what happens to the spoke?”

Nationally, office prices are down about 10 percent from pre-pandemic levels, Ismail noted. But he said very high-quality core buildings, trophy buildings, have retained their values.