Chris Stephens: Technology means less demand for office space

Real EstateMarch 30, 2013 

All around us we see the changes wrought by technology, whether in the shift away from "brick and mortar" stores, "smart" appliances or retailers mining data from our Web browsing. The examples go on and on.

We're also seeing the effects of technology in a decrease in the amount of office space required per worker. Experts predict future demand for office space will be 20 percent less than we otherwise would have expected. We used to estimate space requirements at about 250 square feet per person. These days the most advanced office designs figure only 185 square feet per person.

The reduction in space is being accomplished through open, more flexible work space designs instead of cubicles and offices.

The trend is a fact of life now for large public firms and tech companies, writes Mark Heschmeyer in a March article published by CoStar Group, a real estate publication. Heschmeyer's piece, "Changing Office Trends Hold Major Implications for Future Office Demand," describes the appeal of open office designs.

Three forces are driving demand for open design: technology, younger workers who embrace new technology, and efforts by companies to minimize costs. All this results in less demand for traditionally configured office space.

Technology, with the advent of cloud-based paperless file storage, makes access and sharing possible anywhere, anytime. Wireless laptops and mobile devices make work possible without tethering workers to one location.

Younger workers want the more flexible, collaborative, social work environment made possible by technology. The open design provides heightened productivity and creativity.

This trend is being carried to the max in tech firms with free-form seating arrangements. Everyone has wireless devices. They can wander around, yet stay connected with their mobile phone, laptop or tablet. These firms also provide communal amenities like recreation rooms, massage and stress-reduction rooms, even nap rooms.

During the Great Recession, the need to cut costs prompted companies to use space more efficiently. Now that occupancy costs are on the table, they are not coming off even though the economy is recovering.

Smaller firms have been less likely to adopt open office design. And open design does not work for every use; for example, call centers use cubicles to reduce noise.

Increased population density puts stress on buildings. Parking that was designed for three or four spaces per 1,000 square feet of leased space may become seven spaces per 1,000 square feet. The increased occupancy also affects ventilation demand with more bodies in a given space. Bathrooms and elevator capacities are also affected, as well as janitorial services. The demand for electrical power grows with the large number of electrical devices being used.

Newer buildings are designed for higher density. They have attractive architecture, designed with flexible work areas. They are more energy efficient, with better heat control and healthier ventilation systems, as well as more natural light and enhanced sound control. Converting older buildings to provide these qualities is difficult if not impossible. This brings added pressure for new construction.

While new buildings with all these amenities cost more, the numbers work out because higher worker density means the tenants lease less space, which more than offsets the higher lease rate. This increases productivity and, as one person in the article said, landlords sell productivity, not space.

This trend is the future. While open design is currently taking place in only a portion of the market, over time, it will become the norm. Some predict that closed-wall work environments will become dinosaurs as technology continues to advance and the younger generation displaces more of the work force. The culture of work environments will change and companies will continue to look for ways to reduce the costs of open design.

Anchorage is a secondary market, and we won't see this trend as quickly as major markets like New York and San Francisco. But in time our developers too will adjust building designs to meet new demands.

 


 

Chris Stephens, CCIM, is a local associate broker specializing in commercial and investment real estate. His column appears every month in the Daily News.

 

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