Changing Office Trends Hold Major Implications for Future Office Demand, CoStar Group, March 13, 2013

Pioneered by Tech Firms in California, Communal Workspace Model Becoming More Mainstream Among Big Office Firms

By Mark Heschmeyer

March 13, 2013

 Perhaps just as the inevitable disappearance of music, video and books stores should have been foreseen at the onset of a digitized connected world, so too should the commercial real estate industry start taking a hard look at changes occurring in the office market.

Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees' ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores, Center for Real Estate, in a webinar he presented to CoStar subscribers last week.

Miller said he put together the webinar to examine what would happen if office tenants used 20% less of the nation’s current office space, which has a total valuation of $1.25 trillion. That decrease in demand would represent $250 billion in excess office capacity. Although the current situation is not that dire, Miller said the trend is real, and he presented how it is currently playing out and the long-term implications for office building owners and investors.

Following the webinar, CoStar News interviewed Dr. Miller for a more in-depth discussion of the topic and surveyed a wide sample of webinar participants to share their firsthand account of the ongoing trend and its implications.

According to Miller, four major trends are impacting the office market:
* Move to more standardized work space.
* Non-dedicated office space (sharing), along with more on-site amenities.
* Growing acceptance, even encouragement of telecommuting and working in third places, and
* More collaborative work spaces and functional project teams. . . .

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Dr. Norm Miller, the commercial real estate professor mentioned in this article, has published a balanced and in-depth report on trends in space per office worker called "Changing Trends in Office Space Requirements: Implications for Future Office Demand" this month.  The paper's concluding paragraph says:

Based on reduced space usage, the demise of the office market has certainly been exaggerated, and we will likely see a continuation of space demand far in excess of the targets espoused by a few large public corporations and space planners.  Moving forward, we will see some firms achieve square feet per worker of less than 100 square feet, but given the cultural impediments and the challenges of predicting growth rates, we are more likely to see figures average 150 to 185 square feet per worker phasing slowly towards even lower figures at the end of the decade.  (Emphasis added)  This is a significant reduction is space per worker, but it parallels a need to retrofit much of the existing space to provide more collaborative team space and healthier more productive environments.  At the end of the day landlords are not selling space but rather productivity.  More productive environments with better natural light, temperature and air controls, cleaner air and controllable noise are more productive and will command rental premiums.