impacts of changing demand for office space
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Workplace Revolution:The Impacts of Changing Demand
for Office Space
Appraisal Institute Symposium
March 22, 2014Peter Carlston
Peter CarlstonCEO | Principal Broker
801.948.0899 | 650.533.3736pc@elevationre.com
100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com
Sources
• Commercial Real Estate Brokerages: Colliers International, CBRE, JLL, Commerce CRG
• MIT• NAIOP• Urban Land Institute• CCIM• Appraisal Institute• CoreNet Global• Vendors and Consultants:
Steelcase, Others• EDCU, Utah GOPB• Wall Street Journal, New York
Times, Forbes• Glassdoor.com• Appraisers• Developers• Corporate real estate
directors and clients• University of Utah• USGBC
First, a Story
Site selection: Any office park will do, good freeway access
Site selection: Must be close to CalTrain station and hip urban core
Today’s Presentation
• Drivers of Office Demand• Current Trends• Implications for Value
Drivers of Office Demand
• Tech and Communications Innovation
• Younger Workforce and Cultural Changes
• Changing Workplace Strategy
• Cutting Costs
Driver: Innovation
• Industrial Age to Knowledge Age• Technology and Communications
Driver: Innovation
Driver: Innovation
Driver: Younger Workforce
• Gen X: mid-60’s to early 80’s • Gen Y / Millennials: 1978-1989 or 1977-2000
Boomers Gen X Millennials0
102030405060708090
Gen X vs Gen Y
• Gen X: Latch-key kids
• Gen X: Radicals
• Gen Y: Most parented generation in history
• Gen Y: Happy conformists
Millennials
• SUPER-Confident (all those trophies)• Crave feedback• Want stimulating, social work• Less materialistic – it’s about Experiences …
and then Sharing Them• Highly educated, technologically savvy and
ambitious• Connected
Millennials
At the workplace, Millenials want:• Flexible work hours• Recognition• Social work environment• Cool, creative & inspirational space
Millennials
• Space is PLACE; key to culture and brand• Vital for attracting and retaining talent!
Driver: Workplace Strategy
• Increased need for collaboration and flexibility
Driver: Cutting Costs
• Pressure to minimize costs and streamline operations
• Corporate real estate managers focus on cutting fixed overhead expenses and increasing efficiency
Current Trends
• Less Space per Employee• Need More Flexibility• Open Floor Plans for Collaboration• Shared Workplaces: “Coworking”• Location As Important As Ever• Smaller Leases• (New buildings and efficiency / style
renovations)
Trend: Less Space per Employee
2010 2012 2017 Beyond0
50
100
150
200
250
Trend: Less Space per Employee
• Filing space has shrunk from 15 to 20 percent of office space to around 2 to 3 percent in many cases today
Trend: Greater Flexibility
• Flexibility is a necessary strategy, no longer a perk
• Essential to employee retention• American Express:– Hub– Club– Home– Roam
Trend: Greater Flexibility
• Aetna:• 35,000 employees• 14,500 do not have desks at Aetna• Policies impact 47% of workforce• Rid of 2.7 million square feet of office space• @ $29/sf, company has saved about $78M per
year!
Trend: Greater Flexibility
• Yahoo• “A few years ago it was bring your own device
to work, now it's bring your own [butt] to work.”
• Collaboration, not telecommuting, is the goal• Innovation doesn’t happen in isolation
Trend: Open Floor Plans
• “I” space to “We” space• Allocate workspace to issues instead of
people
Trend: Open Floor Plans
Trend: Open Floor Plans
Trend: Open Floor Plans
Client Case: Color Labs
Client Case: Color Labs
Trend: Open Floor Plans
• Backlash!• High Stress• Conflict
• High Blood Pressure• High Staff Turnover
Trend: “Coworking”
Trend: “Coworking”
Cushman & Wakefield | Commerce to Bring First Shared Executive Office Building to Park City
Trend: Smaller Leases
Trend: Smaller Leases
Demand and Supply
Trend: Location Matters
• Color• “Accelerated Serendipity”• Near cultural amenities• Near transit options• Premium locations still matter• “The City”
Trend: Sustainability
Trend: Sustainability
• “’Embracers’ have better stock prices, better revenue growth, better everything.” MIT
• Economics• 20,000 sf @ $18/sf = $360,000• 15,000 sf @ $20/sf = $300,000
Implications for Value
• Lack of standardized, conceptual approach to valuing green buildings
• Green premium data of limited use to appraisers
• Brown discount unaddressed• Limitations of DCF-based valuation approach
Implications for Value
• Office Demand• Opportunities• To Be Competitive• How Much Space Needed?• Future Space Needs• Other Factors Impacting Demand• Parking
Case Study: Adobe
• Campus helps Adobe win the "talent war“• “Cross generational“ workforce• Space demand is a pendulum• What's more efficient, more sf per work space
or more meeting rooms and amenities?• Timeless look outside, modular inside• All about flexibility and variety.
Case Study: 222 Main
• 426,657 square feet• Completed in December
2009 at a reported cost of $125 million
• Designed by the international architecture firm Skidmore, Owings & Merrill
222 Main
222 Main
• SILVER LEED CERTIFICATION • High performance glazing designed to provide daylight
harvesting• Designed to operate 15% below the State of Utah energy
code• Ability to integrate green technology within individual
tenant space• Building located in a developed urban area with access to
existing infrastructure• Portable water use for landscape irrigation & internal use
reduced by 50% and 40% respectively
222 Main
Tenants• Goldman Sachs• Brinks Hofer Gilson and Lione• Holland & Hart• CBRE• Hamilton Partners
222 Main
222 Main
• KBS Realty purchased for $400/sf, record-breaking price in Utah
• Key reasons for KBS purchase:– building’s first-class finishes;– views of the Wasatch Mountains; – key location in Salt Lake’s central business district;– parking facilities; and its – proximity to TRAX and City Creek shopping mall.
222 Main
"This proves that an outsider can come in from out of state and build a Class A building, lease it in bad economic times, and sell it at record-breaking number for a profit.“- Bruce Bingham, developer of 222 Main
Thank You
Peter CarlstonCEO | Principal Broker
801.948.0899 | 650.533.3736pc@elevationre.com
100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com
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