Office space evolution

Perhaps unsurprisingly, a hot topic of discussion these days is how companies can capitalize on technologies that untether and mobilize employees. If an employee can move from a desktop to laptop computer, can that employee suffice with a smaller desk? If the contents of a file cabinet can be digitized and saved onto that laptop, can a company reduce its physical space? And if that employee can take his or her laptop home and work from there, does the company need an office at all?

“It’s definitely a topic of conversation with almost every client in some form or fashion,” acknowledged Dan McGowan, senior vice president at the Denver branch of Jones Lang LaSalle, a financial-services firm focusing on commercial real estate. McGowan represents companies in Colorado that are negotiating new office leases.

He pointed to a client’s recent lease as an example of how these converging trends are beginning to transform companies’ spatial needs. He said the client – an environmental consulting firm that declined to be identified – was able to reduce its office footprint by almost 35 percent by evaluating exactly how the work space is used. With employees meeting customers, visiting work sites and producing with equal effectiveness from home, “It turned out only 65 percent of them were in the office space at the same time,” McGowan said.

In response, the company issued laptops to each of its employees and reworked its layout by eliminating assigned desks. Now employees on-site are able to select an open seat and have their calls dynamically routed to any desk they are working from that day. Employees can also work from home or a coffee shop if they have no pressing reason to be in the office. To ensure accountability the company invested in software to track employees’ productivity so no one slips through the cracks.

“It was really just the culture of that company that has really embraced the concept,” McGowan explained, adding that a 35 percent reduction in space is an “extreme example” of the trend toward a more mobile work force. But “I think the trend is that there will be more. … It just allows people a little bit more freedom.”

Added McGowan: “Could I work remotely? I absolutely could.”

Jennie Nevin has similar examples. The owner of Green Spaces, a multi-site co-working  facility, said that a group of architects recently decided to position their business in Green Spaces rather than purchase dedicated office space.

Co-working offices are “cheaper and more flexible,” Nevin said, explaining that companies can easily add or drop desks as their business needs change.

Indeed, the trend is such that Nevin said she’s considering opening another Green Spaces location to cater to larger companies looking for traditional office alternatives.

Employees’ office space is shrinking

Research from a number of sources shows that McGowan and Nevin aren’t the only ones following this trend. Jones Lang LaSalle conducted a survey this year of more than 600 corporate real estate executives from 39 countries and found that 31 percent of respondents have overseen a reduction in the size of their real estate portfolio in the past three years. Additionally, 79 percent believe that space utilization will increase further during the next three years.

According to CoStar, which provides commercial real estate information, marketing and analytic services, the average square footage of all office leases signed in the past decade fell by 7 percent, to about 4,500 square feet. However, the firm noted that if renewals are removed and only new leases considered, the cumulative result would be a 21 percent decrease, to 3,800 square feet. CoStar found the steepest drop – 27 percent – occurred in “Class C” buildings, or relatively inexpensive locations; but even the most expensive Class A locations have declined by 7 percent.

“When it comes to shrinking office footprints, one of the biggest technological game changers has been the increasing ability of white-collar employees to effectively work outside the office. Simply put, the fewer employees that require desks at the office, the less space the company needs to lease. The cost savings from not having to lease (and furnish) space formerly occupied by telecommuters can be substantial,” CoStar noted in a report, adding that employees in the education, training and library sectors were the most likely group to work from home, at almost 20 percent, while those in the health care field were the least likely to work from home, at less than 5 percent.

“There is absolutely a trend toward reduced office space” in the state, said Walter Page, director of office research for CoStar in Colorado. Page said that smaller computers, digitized information storage and the ability to work outside the office will contribute to “at least a 1 percent drop per year for the next five years” in the space needs of office tenants.

{pagebreak}

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.”