For multitenant office buildings in competitive markets, keeping a building fully occupied can become an amenities arms race. Many property teams may have never even considered offering on-site childcare as a way to woo desirable tenants, but the move to invest in daycare space—either as an amenity or through a childcare-focused tenant—might just give them that competitive edge.
More commercial tenants are looking for on-site childcare in their buildings in an effort to recruit and retain talent, prompting some multitenant office building owners to put daycares high on their priority list of amenities. In fact, in some cases, this highly prized perk has risen to the level of other popular tenant-exclusive benefits like fitness centers and conference rooms.
"We need to be able to attract large corporate users," says Pat Seng, vice president and general manager with the Minneapolis office of Cushman & Wakefield. Seng oversees a multitenant office park in the Minneapolis area that includes an approximately 5,000-square-foot childcare center that can accommodate roughly 50 children. "Childcare gives us a much better strategic opportunity to satisfy the corporate user’s needs," he notes, adding that the amenity broadens the pool of big corporate office tenants. Here, the building owner formed a strategic alliance with a daycare provider to operate the facility.
Childcare is a major concern for parents with children who are not yet school age. According to research by the Pew Research Center, 62 percent of parents with children younger than six say that finding good, affordable childcare is either somewhat hard or very hard. Offering on-site childcare is a big boon to help keep these parents in the workforce—and it allows them to stay close to the office throughout the day.
Despite competitive advantages, however, there’s unease among some building owners about mixing business with childcare. Offering on-site childcare can be capital-intensive and complex, as it’s a highly regulated business. "There’s always some concern that they’re little children and offices are not really built for that," Seng explains. He says a building needs common areas that are conducive to existing tenants, as well as an amenity like a daycare.
PLEASE, NO RUNNING IN THE LOBBY
Having an entrance to the daycare that’s separate from the lobby is a definite necessity, according to Pam Miklowski, property manager at One Glenlake Parkway, a multitenant office building in Atlanta. The building is owned by Columbia Property Trust, although the property and nearby Three Glenlake Parkway are on the market. "We have a very professional, Class A-type lobby," Miklowski says. "It would be weird if you had parents pick up and drop off there. It’s not an environment for kids."
She admits there was trepidation six years ago when the 23,220-square-foot childcare center opened. It’s run by Bright Horizons, which operates 1,000 childcare centers worldwide. The center accommodates 120 children (up to age five), and summer camps can handle some additional older children. The center also features two outdoor play areas.
The daycare initially opened for corporate user Newell Brands, but Bright Horizons now subleases the space and offers childcare to tenants at One Glenlake and Three Glenlake, as well as nearby corporations that include UPS’ world headquarters. "A lot of people were really nervous as to how the tenants were going to react to having the daycare; how that dynamic was going to change the property itself," Miklowski recalls. "But, luckily, all the fears that the folks in real estate had didn’t come to fruition. The tenant response is wonderful."
Of course, the property team took steps to alleviate possible issues. For example, the daycare’s separate entrance has a handful of parking spaces designated for pick-up and drop-off, so it doesn’t impact the flow of the parking deck.
Miklowski says there’s always a waiting list and she herself has used the center. Daycare isn’t an amenity every occupant will use, but it can make a huge impact on those who do.
"One of the things I enjoyed and heard other parents echo was, on your lunch hour, you can go and spend time with your baby," Miklowski notes. "If you’re nursing, you’re able to nurse…It was such a huge convenience. It makes the transition back to work just so much easier."
LIVE-WORK-PLAY (WITH KIDS)
While it’s difficult to track the number of U.S. multitenant office buildings offering on-site childcare, anecdotally, it’s still outside of the norm. Seng says, "What I would always get from a true corporate real estate manager is they’re somewhat surprised and say that’s a really nice perk."
Studies find there are benefits to employers. According to JLL research, 84 percent of employees with access to "on-site spaces for small children"
felt engaged at work, well exceeding the average engagement rate of 65 percent.
But, Seng adds that today’s building owners need to speak to the evolving market. "If you’re considering yourself a modern, Class A, urban office building, you need to provide a comprehensive live-work-play environment," he notes. "In the past, that really just meant a convenience store and restaurants. That doesn’t do it anymore. You have to include things that help make people’s lives simpler, and a big piece of that for working families is on-site daycare."
Studies find there are benefits to employers. According to JLL research, 84 percent of employees with access to "on-site spaces for small children" felt engaged at work, well exceeding the average engagement rate of 65 percent. On-site childcare can have a big impact on retention of new parents, particularly women, too. In the challenge to find quality, affordable childcare, it’s still more common for mothers to leave the workforce to care for children. As women continue to claim more leadership positions across industries and are more likely to be their family’s primary breadwinner than ever before, their specific workplace needs can no longer be ignored.
HOW TO MAKE IT WORK
On-site childcare can be a major differentiator in a competitive market, but it’s not a good fit for every building. Following are a few things to keep in mind if you’re considering adding this amenity:
- There must be mass (and space). A building needs to be big enough to make offering childcare worthwhile, and it needs an employee population that will utilize it. On the flip side, if there is a lot of demand, the space needs to be big enough for a reasonable number of occupants to take advantage of it.
Is it financially feasible? Keep in mind, Seng says, that childcare centers aren’t in the same rent profile as office tenants. "An owner has to make a choice if they’re willing to offer below-market rental rates for what comparable space would run," he explains.
Miklowski agrees. "As an owner, you’re going to take a hit, because there’s no way you’re going to get what the going rates are per square foot from a daycare," she says.
If it’s a "true amenity," she says a building owner loses that square footage and that income. However, if the childcare center attracts tenants, it could offset losses. "We don’t have that data yet that says, ‘Are we able to keep the building leased, in part, because this is an amenity that people want?’ I want to say yes, because otherwise there would be vacancies in the daycare," notes Miklowski.
- Does it outweigh the importance of other amenities? Typically, building owners have a limited pool of capital slated for amenities and must decide, for example, whether they should invest in an updated common area, add a fitness center or another conference room or put in a daycare. Building owners must take into account the opportunity costs when making such decisions.
Build-out is expensive. Childcare centers require a very specialized build-out that must meet specific accessibility requirements, cleanliness and hand-washing requirements, safety issues, kitchen needs, storage, indoor play areas, etc. With this type of extensive build-out, building owners will likely give the tenant an allowance and they will be responsible for coordinating their own build-out.
"In addition to paying below-office market rents, the build-outs are very substantial," Seng explains. "Another problem is if the daycare does go belly up, I can’t use that build-out for anything else."
Logistical issues can be complicated. You must work through the special security protocols that are required (including fire drills and evacuations). And, many daycares require an outdoor space. In a very urban setting, that could be challenging.
From an operational standpoint, water intrusion is a concern. "We worry about any kind of water leaks; and, when you add a daycare, you’ve just multiplied the number of sinks and toilets," Miklowski says. "Water can damage things quickly." Her staff walks tenant spaces during non-business hours to ensure nothing is leaking.
A CORPORATION’S VIEWPOINT
Offering access to childcare can make the difference between a good workplace and a great workplace. Working Mother magazine released its 2018 list of the "100 Best Companies" for working mothers, and 36 percent offered on-site childcare. This may not seem like a lot, but only 7 percent of all U.S. companies offer childcare at the worksite, according to the Society for Human Resource Management’s 2016 National Study of Employers.
Atlanta-based The Home Depot is one of those companies that does. Utilizing state childcare tax credits, the 40,000-square-foot Little Apron Academy opened in 2012 at The Home Depot’s corporate headquarters. The center serves 278 children and is operated by Bright Horizons. It features 22 classrooms and 26,000 square feet of outdoor space, which includes a basketball court and a "sprayground"—a play area with numerous water features to help keep kids cool in the hot Atlanta summers.
The center is in a separate building that’s linked to the main office via an enclosed walkway. The Home Depot’s headquarters employs 6,400 people, and the daycare also is available to associates who work in its Atlanta-area stores.
Company officials say the center helps increase employee productivity and retention, because parents appreciate the convenience and have peace of mind knowing their children are nearby and well-cared for. "There’s definitely a productivity play in terms of having associates be able to come on-site, bring their children with them and know that they’re here," says Lesley Leiserson, senior director of Benefits and Health Management at The Home Depot. "It aligns really nicely with our values, taking care of our people and looking at ways to maximize our diversity within our workforce and supporting families."
Leiserson adds it also helps the giant home improvement retailer compete to attract talent. "With the tax credits in Georgia, some other large corporations also have childcare centers here," she says. They include Chick-fil-A, Aflac and Georgia-Pacific, among others. "It really made sense for us even more so to say, ‘Hey, we do want to be competitive. We don’t want to be one that doesn’t have it.’"
Leiserson’s advice to other companies considering on-site childcare is to have a number of contingency plans as these facilities may fill up quicker than anticipated. "If it becomes so popular, what will you do?" she asks. "What type of wait list are you okay to keep and what are you telling your associates in terms of wait time based on your center’s capacity?" If demand is very high, she recommends looking at how well the space has been optimized, if there is a way to add on additional square footage or if it’s possible to partner with local facilities.
On-site childcare is a very sought-after amenity for many corporations in the war for top talent. Buildings with an otherwise hard-to-lease space may find this a particularly appealing option. Providing childcare is more complicated than simply building out a gym, but it can be a major market differentiator. And, making it work can be quite rewarding for the property team.
ABOUT THE AUTHOR: Liz Wolf is a Twin Cities-based freelance writer with 30-plus years of business and commercial real estate reporting experience. She previously served as editor of the Minnesota Real Estate Journal.
This article was originally published in the April/May 2019 issue of BOMA Magazine.