There is a new trend in corporate real estate—shrinkage—as evidenced by demand of corporate users to decrease their occupancy costs. It looms large, like the proverbial elephant in the room, with tenant office shopping heating up again. Activity is brisk, but it is pretty clear that the probability of rapid net absorption is remote.
Here’s why. We are seeing several changes in the way that corporate users view workspace. But all seem to result in a net reduction in the square footage requirement. Most clients are asking for ways to reduce their total occupancy cost by 10 percent-20 percent. In addition to locking down a better lease rate, the best way to impact occupancy cost is less square footage—shrinkage. There are several factors that are driving this trend:
1. Corporate job losses from the recession have not been replaced, and many have decided not to return to the workplace or are engaged in online or freelance businesses from home.
2. Corporate cutbacks have reduced the number of contract employees physically officing in the workplace.
3. Studies have shown that as much as 40 percent of office desks are empty on any given workday due to an increasingly mobile workforce, absenteeism, and work-from-home programs. How many conference calls have you participated in lately with a dog barking in the background of your call?
4. Workplace efficiency studies are frequently able to identify alternative workstation and office configurations that are right-sized to match the way we work today. This frequently reveals significant reductions in office space requirements.
5. Prior to the 2009 downturn and in the two preceding decades, business growth increased the demand for office space expansion. Many corporations met the demand by adding less costly back-office space in separate facilities. Today, as the result of work force reductions, many of these firms are consolidating these offices under one roof to reduce duplicate costs and increase workplace efficiencies. The net of it returns space back to the market.
6. The tech-savvy Gen Y employee (18-32 years old) values a more collaborative and flexible workspace than Baby Boomers, requiring only “touch-down” space to support their mobile office (smart phone, tablet and maybe a laptop). A full-time desk job with PC and a land-line just doesn’t relate to them. Shared touch-down or “hoteling” space consumes 50 percent or more less office space. Shared collaboration areas consume less space than private conference facilities.
7. Even technology space is shrinking. Cloud computing and virtual networking are reducing the need for additional server room space. Video conferencing rooms will be a thing of the past, as video apps such as Skype or Facetime will bring us together wherever we are.
If you feel that I may be talking about a small minority of the work force, check this fact. In Texas, 53 percent of the state’s population is under the age of 34! Not all of are of working age yet, but most will be this decade. Creating office space that attracts the younger employee will be imperative to stay competitive.
Bear in mind that none of the these trends have anything to do with what is or is not happening in Europe, the election, the financial cliff, consumer confidence, or the stock market. Those factors have their own impact on a real estate market. What is clear is that savvy corporations will increasingly look to the real estate industry to help solve a growing need to right-size their real estate by finding workplace efficiencies that provide a competitive advantage.