Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/128835
SPACE UTILIZATION FACTORS Hoteling. Not surprisingly, any firm that moves to an office hoteling strategy with standardized space for most workers will dramatically shrink its footprint and space per worker while increasing utilization rates — the percent of all work spaces occupied on average. Such a move can reduce space required by 35 percent or more and result in utilization rates of 90 percent or more versus the more typical 50 percent. Turnover. Firms with low turnover rates — under 10 percent — have far higher utilization rates than firms with high churn rates around 35 percent. Time to fill a position also matters but less so than turnover. Only firms with a very stable workforce with little turnover and little need to expand or contract over the course of a lease term will ever hit space per worker or utilization rate targets. Employee Age. Worker age matters with respect to the type of space required to attract and retain workers. Older workers are more likely to believe that office size matters and dedicated space is a signal of rank and success. Younger workers seem more willing to accept less dedicated space in exchange for a host of amenities and better working environments. Parking. Higher utilization rates significantly increases the demand for parking space. Firms with high office utilization rates require as much as 100 percent more parking per 1,000 sf as traditional dedicated office space, unless they happen to be located at transit stops in a city with good public transport options. Future Space Needs A survey conducted by the author suggests that everyone wants to use less space. Large frms, representing about a third of all ofce space users, have increasingly moved toward more-standardized shared, or nondedicated, ofce space. Based on input from CoreNet Global members and CBRE tenants, tenants with footprints greater than 75,000 sf are working harder to use space more efciently. Tis group tends to encourage digital storage on centralized cloud-based servers and use nondedicated standardized space for all but the most senior of managers. Tis group represents 1.8 percent of all U.S. tenants by count and 27.9 percent of all ofce space. Tose using more than 50,000 sf represent 36 percent of the total ofce stock. If, using some of the space-sharing strategies described above, 36 percent of the frms reduce their primary leased ofce footprint by 50 percent, moving from 250 sf to 125 sf, this would be the 40 May | June | 2013 equivalent of 540 million sf out of some 12.25 billion ofce sf as of 2013. Historically this is equivalent to 3.6 years of average U.S. deliveries of net new ofce space to the market, which has averaged close to 150 million sf per year since 1983. At the same time we recognize that little space has been added from 2009 through 2012 and the ofce stock has actually shrunk due to increasing obsolescence. Absorption has been positive for the two years prior to the end of 2012. Along with companies' higher space utilization rates, other factors are afecting future ofce space demand. Te lack of new construction inhibits space use efciency. Newer buildings allow for moreefcient use of space, especially when built for a particular tenant. But as the lease ages, the amount of space leased and the number of workers in the space generally changes, resulting in increased space per worker. As second-generation tenants replace frst-generation tenants, it is ofen more difcult to use the space as efciently. Tis is generally the case for most small frms that cannot, on their own, drive new supply in the market. Looking at the global market, ofce space per worker is much less in Europe and Asia than in the U.S., suggesting some of U.S. demand is culturally based. Tus, as the U.S. companies are infuenced by companies and employees from other countries, ofce confgurations and work space allocations per worker may change. In addition, the increasing mobility of U.S. ofce workers who may work full or part-time from other locations, is causing companies to reconsider the need for dedicated ofce space for every employee. Companies are also increasing the proportion of collaboration and team space in ofces, along with more space devoted to amenities. Tese fexible spaces are ofsetting some of the square footage lost to smaller dedicated work spaces. We are also witnessing an increasing trend toward greener ofce space with more natural light, better natural ventilation, and better temperature controls, all of which may add to the comfort and productivity of ofce workers. Over a longer term, the average size of space leased has fallen by 21 percent during the past 10 years, according to a Property Portfolio Research September 2012 report. PPR also notes that green, transitfriendly space is increasingly in demand, suggesting that much of the existing space is obsolete and needs retroftting. Tose buildings that are able to bring in more natural light without extraordinary costs seem to ofer the best opportunities for retroftting. Decreases in total ofce consumption based on more-fexible work location patterns and higher utilization rates are underway, but they take time. Te total demand for space will grow at a slower pace for the next few decades, as frms decrease space allocated per employee, but there will be substantial demand for better interiors more adapted to the newer style of working. Over the next several years we will likely see a large spread in the space required per worker from the most efcient space users to traditional space users, so estimating the average sf per worker will be a challenge. Te most reasonable estimates presume a continual but slow reduction in space per worker. For now, 200 sf to 250 sf per worker is still a reasonable estimate for most traditional frms, but at Commercial Investment Real Estate