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Posted: July 07, 2013

Office space evolution

Companies going smaller, cheaper and mobile

Mike Dano

Page noted that the trend has even spread to the government sector as well. He pointed to a recent Federal Times article that reported the General Services Administration’s regional headquarters in Denver recently reduced its space per employee by 48 percent. The GSA is now squeezing 122 smaller work stations into the space previously taken by 77.

“Denver is a market that has proven to be a little more resilient” to the trend of shrinking office space, noted Jeff Myers, senior real estate economist with CoStar. Myers said the IT industry, which is relatively strong in Denver, has been somewhat insulated from the recent recession and therefore hasn’t needed to cut costs by minimizing space.

 

Colorado developers react to
office trends

Marshall Burton is the executive vice president of Opus Development Co., a privately held developer, designer and builder. The company has overseen the construction of the Region 8 headquarters for the Environmental Protection Agency on the 16th Street Mall in downtown Denver, and currently has $100 million of work committed to developments in 2013.

“There has been a compression in the amount of dedicated space per employee,” Burton echoes. Twenty years ago, he said, employees each had on average 350 square feet – today it’s in the 175 square feet range.

“There are more people working in smaller spaces, is really what it amounts to,” agreed Mickey Zeppelin, a longtime developer in downtown Denver and head of Zeppelin Development Inc. “Buildings are using less space per person than they did in the past.”

“However, the offset to that has been companies investing in more collaborative spaces,” Burton added. While companies are decreasing the amount of available room dedicated to each individual worker, they are concurrently increasing the amount of conference and dining space.

Bill Mosher, senior managing director of the Colorado division of developer Trammell Crow Co., explained that companies want to “create space around the water cooler, if you will,” by adding additional meeting and conference rooms. He said Trammell Crow finished work on DaVita’s new Denver office in August 2012, where there are more than 90 different meeting spaces – large and small – in that building.

“The individual private spaces are getting smaller, but the collaboration spaces are getting more robust,” Burton said.

Zeppelin said that the shrinking office and increasingly mobile work force have not cut into his business.

“The office market seems to be relatively strong,” he said.

And other developers agreed.

“I do have office spaces for rent and they’re full,” said Jon Cook, a developer who has been working in the South Broadway neighborhood for dozens of years.

“Office rents are starting to go up, office vacancies are starting to go down,” said Mosher.

Indeed, Transwestern research shows the office vacancy rate in Denver in the first quarter was 12.4 percent, lower than the national vacancy rate of 13.4 percent. And that’s an improvement from the first quarter of last year, when Denver’s rate was 12.9 percent and the national rate was 14 percent.

But the trend is not confined to Denver. In Colorado Springs, corporate real estate developers are seeing similar changes. Randy Miller, a managing director with Sierra Commercial Real Estate in Colorado Springs, said he recently offered a fully furnished office with 130 cubicles, each 56 square feet. However, the buyer of the building changed the layout of the office to squeeze in more cubicles, each measuring just 36 square feet.

“It’s definitely true that in general the requirements are for more density in the space – in other words, more employees,” Miller said, adding that development companies are countering that trend with an expansion in the amount of conference rooms that can, in some cases, seat up to 100 employees.

The reason that the market for corporate real estate remains strong, despite shrinking office space and mobile workers, is not surprising: “It’s all based on job growth,” Mosher explained.

Transwestern found that month-to-month gains in new jobs nationwide “continue to surpass economists’ expectations,” with 236,000 jobs added in February of this year.

Further, most companies can’t simply shut down 20-30 percent of their office space. As McGowan explained, companies first need to invest in upgraded technology and furniture, not to mention a culture that can handle mobile workers. Then there’s this to consider: Building a denser office will put a greater strain on ventilation, facilities and parking.

“It’s not as easy as it might sound,” McGowan said.

Finally, some companies have taken a well-documented stance against working from home. Yahoo earlier this year made waves with a requirement that employees complete their work at work, with the goal of encouraging face-to-face collaboration.

Cook takes a decidedly old-school stance on the issue: He doesn’t have a computer in his office and won’t deal with anyone who can’t meet with him in person. But he offers a view on the issue that seems timeless: “People with bad office spaces hate going to work every day,” he said. “People who have nice office spaces like going to work every day.”

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Mike Dano is a freelance writer and the executive editor for the Telecom Group for FierceMarkets, which includes FierceWireless, FierceTelecom and other publications. Mike has been a journalist for more than a dozen years. Follow Mike @mikeddano and on LinkedIn. Mike is based in Arvada.

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