costar webinar changingtrendsinoffice

8/22/2019 CoStar Webinar ChangingTrendsinOffice

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Changing Trends in Office Space

Requirements:Implications for Future Office Demand

Copyright 2013 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability ofthe information contained herein, the following information includes projections that are based on various assumptions by CoStarconcerning future events and circumstances, as well as historical and current data maintained in CoStars database. Actual resultsmay vary from the projections presented. The information in this presentation is provided as is and CoStar expressly disclaimsany guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose.

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Todays Presenter

Norm G. Miller, PhD

University of San DiegoBurnham-Moores

Center for Real [email protected]
mailto:[email protected]:[email protected]


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Youve Heard It Before

Telecommuting will killthe office market

Time to come back to the

office guys!Marissa Mayer, CEO Yahoo


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Motivation For Research

We have over $1.25 trillion US Dollars ofOffice Stock, more than 12 billion square feet

What if we only needed 80% of what we now

use? That would mean 250 Billion is Excess Office

Capital


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GSAs Public Building Service has a long-

term goal of improving the way federal

agencies use space and downsizing the

federal office space footprint. GSA is

leading the way in its own Washington,D.C., headquarters, where it is reshaping

traditional office floor plans and shrinking

the workspaces for many employees by

about 50%down to nearly 82 square feet

per workerin what is being promoted as

a model for other federal workplaces.

Source: Colliers, March 28, 2012


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Large public firms like these have been

moving to new space use models

Allows many workers to work anywhere and has been moving to standardized

non-dedicated space. Their office work station utilization rate has moved from

60% to over 90%.

Accenture has dramatically increased its utilization rate from 50% in the year

2000 into the 80% range today using various over flow office space providers.

Working with CBRE advisers since 2005 . The plan is to minimize interruptions

and lost productivity due to facility issues and increase productivity while using

space more efficiently.

Working with CBRE since 2009 is redesigning space to be more flexible and

allow more collaboration.

CISCO, again with CBRE, is moving its utilization rate from 45% to 85%.

HP is targeting 120-150 sq. ft. and 85% utilization with standardized and

highly shared space.


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U.S. Space Per Worker Trends In Sq Ft

310

320

330

340

350

360

370

380Based on Property Portfolio 54 (largest 54 markets) and CoStar data


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U.S. Square Feet Per Worker In 2010

-

50

100

150

200

250

300

350

400

450

500

Based on CoStar data and all existing leases


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Median Square Feet Per Worker Mid 2012

0

50

100

150

200

250

300

350

400

450


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Is It Simply Culture?

0

50

100

150

200

250

300

China Japan EU-15 US

Building Space per Person Commercial Square Feet in 2007Source: World Business Council for Sustainable Development


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Maybe The Cost To Hold The Space Available And

Ready Is Not That Great Compared To Labor Costs?

2.00%

2.20%

2.40%

2.60%

2.80%

3.00%

3.20%

U.S. Corporate Rent as Percent of Total Operation Expenseswith Trend Line

Source: CRSP Data


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Maybe We Dont Need A Place To Keep As

Much Stuff In The Office As Before


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Major Trends Impacting The Office Market

Standardized Work Space Non-Dedicated Office Space (sharing) along

with more amenities

More tolerance, even encouragement oftelecommuting and working in 3rd places

More collaborative work spaces and

functional project teams Greater emphasis on higher space utilization,

innovation and productivity


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Standardized Work Space

Old Model New Model

Large Corner Officefor Sr. Officers

Large OutsideOffice for Middle

Managers

Sr. Staff

Staff

Clerical

CEO

Everyone

More team

meeting rooms

WorkingAnywhere


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The Past The Future


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Non-Dedicated Space

Historically everyone had their own office orwork desk and we had utilization rates of 50%or so.

Firms that have moved to sharing space haveutilization rates of 80% to 95% sometimesusing conference space seats for overflow or

temporary office space vendors like LiquidSpace, Regus, HQ, Instant Space as well ashome and 3rd places.


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What Do Tenants Say They Want?

Less noiseand the ability to control interruptions Cleanerairand control overtemperature

Configurations with more collaborative space

More natural light More natural ventilation (operable windows)


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Pixar Front Entrance With Lots Of

Natural Light


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Pixar


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Pixar Private Offices: One Example


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Pixar: Chance Encounters


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Gensler, Baltimore


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Google: Flexible Space


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Google, London HQ


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AdidasNewHQ, Berlin


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Red Bull


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IDEO, San Francisco


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More Evidence of Down Sizing

Leased space sizes have been shrinking.

As of mid 2012 the average was 185 sq ft per worker, wellbelow the average space assumption in most office demandmodels and well below figures 10 years ago.

So will the downsizing trends negate the needfor net new space?


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Trends Often Take Longer Than Predicted

Downsizing takes time and cultural shifts. Lawyers giving up law books and files takes

time.

Professors giving up book cases anddedicated space?

Space planning never quite works out as

planned.


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Impediments to Efficient Office Space Use

Long term leases especially for a growing firm Private dedicated space and hierarchies of

different space types that are not substitutable

Employee churn Time required to fill positions

Unexpected downsizing

These effects can be simulated


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Growth Rates from -10% To +20% With a Target of

150 Sq Ft/Worker and No Private Space, All Standardized


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What about the impact of downsizing?

We will see downsizing, mostly among largerpublic firms, based primarily on moving to anon-dedicated sharing of space and tolerance

for working anywhere. This will happen over several years.

But it will more major markets with larger

tenants, and it will not happen evenly in allmetros.

How many of these large tenants are there?


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0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

75000+ 50000 25000 10000 5000 2500 Up to 2500

By Percentage of Space By # of Tenants

About 1/3rd of all space isoccupied by the large space

users (50,000 plus)

Tenant Numbers By Space Size Range

and Percentage of Market


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Illustration of What We Observe for

Space Per worker

0

5

10

15

20

25

30

35

100 or less 100-150 150-200 200-250 250-300 300 plus

Sq Ft Per Worker Descriptors

Recent vintagelease withstable firm andnon-dedicatedstandardizedspace and littleturnover, plussometelecommutingaccepted.

Downsized firmstuck in a leaseor fast growingfirm in a softmarket securinglots of extraspace.

Normal firm in a moderate to expensive marketwith higher paid workers or more conferenceand team space at the mid point of long lease.

Inexpensivemarket or a firmwith high churnor lots ofhierarchy inspace types.


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Implications

Parking needs will not be 3 or 4 per 1000 sq ftbut 5, 6, or 7 per 1,000 sq ft among theintense use firms (like call centers right now).


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Implications

Nearly all of the existing office space could bereconfigured more efficiently with betternatural light, more energy efficiency, healthier

better ventilation and more sound control. Great designs will try and minimize

interruptions and provide flexible work space.

Landlords are not selling space butproductivity and more productive space willcommand higher rents per square foot.


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Conclusions

Changes in the office market are inevitable. Space needs to be improved (noise, sound, air,

temp) and become more efficient.

Yet the demise of the office market is not goingto occur because downsizing takes time but itmay catch some owners off guard.

Progressive landlords and consultants will getout in front of this curve and assist in thetransition rather than resist it.


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Thanks

If you wish to see formal papers on the topic,contact: [email protected]

Thanks to Inna Panchuk, MSRE Candidate2013, University of San Diego, for researchassistance on design trends.
mailto:[email protected]:[email protected]

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