Office Leasing

Office Leasing Trends

What key points attract nonprofit tenant interest?

As traditional office tenants undergo a seismic shift in their space-using habits, office leasing professionals realize that less-well-known tenant groups, such as nonprofit organizations, are coming to the fore as office space users. Nonprofit organizations are a group that may be under the radar in many markets, but understanding what drives this growing field can help to meet their tenant needs.

Colliers Not-for-Profit Advisory Group based in Toronto works with a wide selection of nonprofit clients in such segments as charities, associations, and national/local health, educational, institutional, housing, and religious organizations. Colliers' specialized group informs nonprofit clients how to reduce real estate costs, minimize risk, and maximize flexibility within their lease agreements and owned properties. It also assists clients to create workspaces that promote and support the organization's culture, mission, and identity.

Earlier this year, Colliers' nonprofit group conducted a survey of more than 50 senior executives of nonprofit organizations. The group released the results from its inaugural Not-for-Profit Office Trends Benchmarking Survey

The report identified three key areas that nonprofits need to consider in their pursuit of maximizing capacity, optimizing impact, and ultimately increasing productivity within their real estate. Not surprisingly, these touchpoints - access, identity, and collaboration - mirror trends among general tenants in office-using space, but to vastly different degrees.

Can Location Affect Turnover?

For nonprofits, the old real estate motto of location, location, location has become transit, transit, transit. Of the survey respondents, 42 percent identified proximity to transit as the most important factor in choosing their office space.

The other most important considerations for office space included creating better efficiencies; promoting team collaboration; maintaining flexibility to downsize and expand; and attracting and retaining employees.

CIRE_JulAug16_39a

Further, the survey found it was vital for nonprofit organizations to not only consider access for employees, but access for volunteers, board members, and funders as well as access to local amenities.

A nonprofit's ability to maximize organizational potential and capacity greatly hinges on the accessibility of its premises to stakeholders. With a location easily accessible to board members, an organization can build its capacity through increased participation of this group.

Space Mirrors Impact

Choosing a building and space aligned with their organizational identity surprisingly only ranked eighth out of a choice of 10 building attributes. This is a missed opportunity, since office space provides a window into a nonprofit's mission and culture and has the capability to affect funding.

Pictures, stories, and testimonials reaffirm an organization's purpose. In a relatively inexpensive manner, nonprofit organizations have the ability to let their space tell their story. This can be done via both the physical office space and the visual appearance of their website and social media.

Forward-thinking nonprofits are mindful of the balance between image, accountability, and culture. The appearance and identity of a nonprofit's office space provides a window into their mission and culture. Strategically placed messaging within an organization's premises reaffirms the important work being done and can help to engage employees, volunteers, and anyone who enters the organization's space. These subtle messages can positively reinforce the organization's purpose and successes, boosting morale and culture, while also reaffirming with donors and volunteers the very reasons why those individuals support the organization.

Collaboration Promotes Creativity

Of the respondents, 66 percent had a desire to create more open collaborative space, such as central eat-in kitchen areas, open area meeting spaces, and nonpermanent seating.

Open collaborative space has the potential to drive engagement, productivity, impact, and desired culture much more so than simply providing open work areas.

Other top desired considerations when making changes to office space included ample meeting areas; more efficient use of space; better planning for future needs; overall better design and functionality; and early buy-in from staff.

Essentially, a nonprofit's success hinges on its ability to maximize productivity and ultimately maximize impact given limited capacity and resources. There exists a fine balance between accountability and impact.

For a nonprofit organization, office space is more than just a workplace; it can be a catalyst for impact and promote an organization's identity and purpose. This can result in greater productivity, promote knowledge transfer, attract and retain employees, and, most importantly for nonprofits, improve access to potential funding to enhance their ability to deliver on their mission.

Specializing in Nonprofit

The nonprofit specialty is a niche area for office leasing firms. To get an idea of the opportunities and challenges of the nonprofit sector, Commercial Investment Real Estate interviewed Peter Davies, CCIM.  

CIRE: For your market, how large is the nonprofit sector in terms of number of clients?

Davies: Approximately 2 million Canadians are employed in the charitable and nonprofit sector and more than 13 million people volunteer for charities and nonprofits in Canada. There are approximately 170,000 nonprofits and charities of varying sizes in Canada, and the sector represents just over $106 billion, or approximately 8 percent of Canada’s GDP. 

CIRE: What is the greatest challenge in working with nonprofit clients?

Davies: In short, it is sometimes a challenge to establish the individual or small group of individuals that will ultimately have the final say on project-related decisions and direction. Nonprofits tend to have a much larger stakeholder base [than for-profits] with direct input into where they should locate their office space and the manner in which it should be designed. Nonprofits often involve all employees of the organization in the decision in addition to their board of directors. Even though this often leads to a longer decision-making cycle, we believe this is a tremendous way of improving employee engagement, attraction, and retention.

CIRE: In terms of space and location, what factors do nonprofits consider most important when leasing space (beyond those discussed in the survey)?

Davies: It is no secret that employees of nonprofit organizations are typically compensated less than their for-profit colleagues. Thus, commute times, employee comfort, access to amenities, and of course, access to transit are almost always the top considerations. In collaboration with our clients, we try to promote the work-life balance attributes associated with properties and locations being considered. It is often the qualitative aspects of any potential property and location that will enhance or detract from employee satisfaction and ultimately the desired organizational culture.

CIRE: Generally, what are the terms of an average nonprofit lease?  What type of buildings do they occupy??

Davies: Similar to for-profit firms, the lease term is often dependent on the size of the organization. Medium-size to large nonprofits tend to look at 10- to 15-year lease terms, and smaller groups tend to require more flexibility and thus their lease terms will average about five years. Transit accessible class B and C buildings are in greatest demand with our nonprofit clients. As our Benchmarking Survey detailed, nonprofits tend to seek a balance between image and accountability, and this is often reflected in a nonprofit’s desire to locate on a mid-to-low floor at a class B or C building, regardless of their financial capability to afford a nicer building or location.

CIRE: What causes most nonprofits to search for new space?  Do nonprofits ever purchase space?

Davies: Similar to for-profit firms, nonprofits search for new space as they expand or downsize, and if they find their current building, location, and/or pricing no longer meets the needs of their stakeholders and employees. There are often tax benefits with ownership that can be compelling. The question of ownership vs. leasing is as much an ideological question as it is a question of economics. The concept of investing in bricks and mortar vs. investing in specific services within the organization’s mission is frequently discussed. We are often asked to participate in board level strategy sessions.

CIRE: For commercial leasing professionals, what are the opportunities  presented when working with nonprofit clients?

Davies: Our nonprofit clients are incredibly loyal because they often understand that a substantial amount of time and effort goes into helping them find the right balance between accountability and impact. Many executive directors and other senior staff sit on boards of other nonprofits, thus the opportunity for referrals is extensive.

There is also the opportunity to witness the benefits of our efforts that go beyond the real estate transaction. When working with organizations like Ronald McDonald House, Plan Canada, the Salvation Army, healthcare providers, or educational groups, it is extremely rewarding to play a fundamental role in helping them build the foundation of where and how they will fulfill their mission for many years to come.

 

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Peter Davies, CCIM

Peter Davies, CCIM, is vice president and co-chair of Colliers Not-for-Profit Advisory Group in Toronto, Canada. Contact him at Peter.Davies@colliers.com.

Matt Johnson

Matt Johnson is vice president and co-chair of Colliers Not-for-Profit Advisory Group in Toronto, Canada. Contact him at Matthew.Johnson@colliers.com

 

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