Changing Office Trends Hold Major Implications for Future Office Demand

Office TrendPioneered by Tech Firms in California, Communal Workspace Model Becoming More Mainstream Among Big Office Firms

 The article below is reposted from CoStar. It was written earlier this year but I believe that it is still very relevant. There is a major change underway in how office space users are looking at their future office space needs and the utilization of their esisting office space.  This is a long term trend that is going to have a significant impact on office space owners, users, and investors.      – Herb Tousley, Director of Real Estate Programs, University of St. Thomas

 

By Mark Heschmeyer

 
Perhaps just as the inevitable disappearance of music, video and books stores should have been foreseen at the onset of a digitized connected world, so too should the commercial real estate industry start taking a hard look at changes occurring in the office market.Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees’ ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores, Center for Real Estate, in a webinar he presented to CoStar subscribers last week.Miller said he put together the webinar to examine what would happen if office tenants used 20% less of the nation’s current office space, which has a total valuation of $1.25 trillion. That decrease in demand would represent $250 billion in excess office capacity. Although the current situation is not that dire, Miller said the trend is real, and he presented how it is currently playing out and the long-term implications for office building owners and investors.Following the webinar, CoStar News interviewed Dr. Miller for a more in-depth discussion of the topic and surveyed a wide sample of webinar participants to share their firsthand account of the ongoing trend and its implications.
 
According to Miller, four major trends are impacting the office market:
* Move to more standardized work space.
* Non-dedicated office space (sharing), along with more on-site amenities.
* Growing acceptance, even encouragement of telecommuting and working in third places, and
* More collaborative work spaces and functional project teams.
 
“Historically, under the old corporate hierarchy, everyone had their own assigned office or work desk and we saw utilization rates of 50% or so,” Miller said. “Firms that have moved to sharing space are seeing much more efficient utilization rates of 80% to 95%, sometimes using conference space seats to handle unexpected overflow. Some also have arrangements with temporary office space vendors like Liquid Space, Regus, HQ, Instant Space, as well as supporting employees working from home or third places.”“The average amount of leased space (per employee) has been shrinking,” he said. “As of mid-2012 the average was 185 square feet per worker, well below the average space assumption in most office-demand models, and well below figures 10 years ago.”There have definitely been changes in office demand, agreed Tim Wang, director and head of investment research for investor Clarion Partners in New York. “Ten years ago, 250 square feet per office employee was the gold standard in office real estate. Today, that average has dropped to approximately 195 square feet. While some office tenants are hesitating to commit to large leases primarily due to economic uncertainties, the long-term trend is clearly shifting towards efficient space usage.” Brian J. Parthum, who tracks employment and economic trends for Southeast Michigan Council of Governments (SEMCOG) in Detroit, said his group is a case in point. “Our own organization recently moved into a smaller space,” Parthum said. “Efficient office design has allowed us to rent 7,000 square feet less space — down from 34,000 square feet — and at a lower rate. Additionally, we now have an office that is more attractive to the next generation of staff. The new space takes advantage of natural light, promotes face-to-face contact, and utilizes laptops, wireless technology, and mobile devices to allow for a more flexible work environment.”“Technology is allowing companies to be more paperless and work from a single laptop or device,” agreed Jason Lewis, president and managing broker of EcoSpace Inc. a brokerage firm in Denver that specializes in working with tenants to find sustainable workplaces. “Culturally the new generation of employees is requiring a more flexible and open environment. And in regards to the economics, there is the need for both startups and corporations to lower their burn rate and conserve cash, something that can easily be done by restructuring the way they view their office space,” Lewis said.For now, at least, the trend is more prevalent among large corporate office users with locations in multiple cities. John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, NJ, said also that the trend to shared office space is more prevalent among larger publically traded companies than smaller firms. “The majority of our smaller tenants, those that lease less than 5,000 square feet, still prefer private offices than an open plan,” Osborne said. “The majority of our smaller tenants, those that lease less than 5,000 square feet, still prefer private offices than an open plan,” noted John G. Osborne, executive director, leasing and marketing at Bergman Real Estate Group in Iselin, N.J.For many office-using firms, the Great Recession made downsizing a greater imperative. Occupancy rates dropped across the country as employers downsized staff and sought efficiencies through lower square foot per employee footprints. “Everything we’ve seen since 2006 and 2008 could be called the ‘Great Deleveraging,’” said Wilson Greenlaw, vice president of Thalhimer in Fredericksburg, VA. “Companies were removing fluff and eventually someone got around to looking at space utilization. Now that it is on the table, it will be maximized and implemented, resulting in a cultural shift for the office worker.”“Some of it is economic,” agreed Miller. “That is, companies realized they could save money by minimizing excess space. But I believe the single biggest factor driving this trend is technology. Now that we have moved to cloud-based file storage and can access our work from anywhere and it can be easily shared, workers no longer have to be tethered to an office to be productive. Technology is very much at the heart of this transformation.”Follow this link to read the rest of the article:  http://www.costar.com/News/Article/Changing-Office-Trends-Hold-Major-Implications-for-Future-Office-Demand/146580 

Tags: , , , , , , , , ,

Comments are closed.