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8/22/2019 CoStar Webinar ChangingTrendsinOffice
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Changing Trends in Office Space
Requirements:Implications for Future Office Demand
Copyright 2013 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability ofthe information contained herein, the following information includes projections that are based on various assumptions by CoStarconcerning future events and circumstances, as well as historical and current data maintained in CoStars database. Actual resultsmay vary from the projections presented. The information in this presentation is provided as is and CoStar expressly disclaimsany guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose.
1331 L. St, Washington D.C. (800) 204-5960 www.costar.com NASDAQ: CSGP
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Todays Presenter
Norm G. Miller, PhD
University of San DiegoBurnham-Moores
Center for Real [email protected]
mailto:[email protected]:[email protected]8/22/2019 CoStar Webinar ChangingTrendsinOffice
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Youve Heard It Before
Telecommuting will killthe office market
Time to come back to the
office guys!Marissa Mayer, CEO Yahoo
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Motivation For Research
We have over $1.25 trillion US Dollars ofOffice Stock, more than 12 billion square feet
What if we only needed 80% of what we now
use? That would mean 250 Billion is Excess Office
Capital
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GSAs Public Building Service has a long-
term goal of improving the way federal
agencies use space and downsizing the
federal office space footprint. GSA is
leading the way in its own Washington,D.C., headquarters, where it is reshaping
traditional office floor plans and shrinking
the workspaces for many employees by
about 50%down to nearly 82 square feet
per workerin what is being promoted as
a model for other federal workplaces.
Source: Colliers, March 28, 2012
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Large public firms like these have been
moving to new space use models
Allows many workers to work anywhere and has been moving to standardized
non-dedicated space. Their office work station utilization rate has moved from
60% to over 90%.
Accenture has dramatically increased its utilization rate from 50% in the year
2000 into the 80% range today using various over flow office space providers.
Working with CBRE advisers since 2005 . The plan is to minimize interruptions
and lost productivity due to facility issues and increase productivity while using
space more efficiently.
Working with CBRE since 2009 is redesigning space to be more flexible and
allow more collaboration.
CISCO, again with CBRE, is moving its utilization rate from 45% to 85%.
HP is targeting 120-150 sq. ft. and 85% utilization with standardized and
highly shared space.
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U.S. Space Per Worker Trends In Sq Ft
310
320
330
340
350
360
370
380Based on Property Portfolio 54 (largest 54 markets) and CoStar data
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U.S. Square Feet Per Worker In 2010
-
50
100
150
200
250
300
350
400
450
500
Based on CoStar data and all existing leases
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Median Square Feet Per Worker Mid 2012
0
50
100
150
200
250
300
350
400
450
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Is It Simply Culture?
0
50
100
150
200
250
300
China Japan EU-15 US
Building Space per Person Commercial Square Feet in 2007Source: World Business Council for Sustainable Development
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Maybe The Cost To Hold The Space Available And
Ready Is Not That Great Compared To Labor Costs?
2.00%
2.20%
2.40%
2.60%
2.80%
3.00%
3.20%
U.S. Corporate Rent as Percent of Total Operation Expenseswith Trend Line
Source: CRSP Data
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Maybe We Dont Need A Place To Keep As
Much Stuff In The Office As Before
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Major Trends Impacting The Office Market
Standardized Work Space Non-Dedicated Office Space (sharing) along
with more amenities
More tolerance, even encouragement oftelecommuting and working in 3rd places
More collaborative work spaces and
functional project teams Greater emphasis on higher space utilization,
innovation and productivity
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Standardized Work Space
Old Model New Model
Large Corner Officefor Sr. Officers
Large OutsideOffice for Middle
Managers
Sr. Staff
Staff
Clerical
CEO
Everyone
More team
meeting rooms
WorkingAnywhere
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The Past The Future
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Non-Dedicated Space
Historically everyone had their own office orwork desk and we had utilization rates of 50%or so.
Firms that have moved to sharing space haveutilization rates of 80% to 95% sometimesusing conference space seats for overflow or
temporary office space vendors like LiquidSpace, Regus, HQ, Instant Space as well ashome and 3rd places.
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What Do Tenants Say They Want?
Less noiseand the ability to control interruptions Cleanerairand control overtemperature
Configurations with more collaborative space
More natural light More natural ventilation (operable windows)
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Pixar Front Entrance With Lots Of
Natural Light
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Pixar
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Pixar Private Offices: One Example
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Pixar: Chance Encounters
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Gensler, Baltimore
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Google: Flexible Space
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Google, London HQ
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AdidasNewHQ, Berlin
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Red Bull
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IDEO, San Francisco
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More Evidence of Down Sizing
Leased space sizes have been shrinking.
As of mid 2012 the average was 185 sq ft per worker, wellbelow the average space assumption in most office demandmodels and well below figures 10 years ago.
So will the downsizing trends negate the needfor net new space?
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Trends Often Take Longer Than Predicted
Downsizing takes time and cultural shifts. Lawyers giving up law books and files takes
time.
Professors giving up book cases anddedicated space?
Space planning never quite works out as
planned.
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Impediments to Efficient Office Space Use
Long term leases especially for a growing firm Private dedicated space and hierarchies of
different space types that are not substitutable
Employee churn Time required to fill positions
Unexpected downsizing
These effects can be simulated
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Growth Rates from -10% To +20% With a Target of
150 Sq Ft/Worker and No Private Space, All Standardized
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What about the impact of downsizing?
We will see downsizing, mostly among largerpublic firms, based primarily on moving to anon-dedicated sharing of space and tolerance
for working anywhere. This will happen over several years.
But it will more major markets with larger
tenants, and it will not happen evenly in allmetros.
How many of these large tenants are there?
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0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
75000+ 50000 25000 10000 5000 2500 Up to 2500
By Percentage of Space By # of Tenants
About 1/3rd of all space isoccupied by the large space
users (50,000 plus)
Tenant Numbers By Space Size Range
and Percentage of Market
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Illustration of What We Observe for
Space Per worker
0
5
10
15
20
25
30
35
100 or less 100-150 150-200 200-250 250-300 300 plus
Sq Ft Per Worker Descriptors
Recent vintagelease withstable firm andnon-dedicatedstandardizedspace and littleturnover, plussometelecommutingaccepted.
Downsized firmstuck in a leaseor fast growingfirm in a softmarket securinglots of extraspace.
Normal firm in a moderate to expensive marketwith higher paid workers or more conferenceand team space at the mid point of long lease.
Inexpensivemarket or a firmwith high churnor lots ofhierarchy inspace types.
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Implications
Parking needs will not be 3 or 4 per 1000 sq ftbut 5, 6, or 7 per 1,000 sq ft among theintense use firms (like call centers right now).
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Implications
Nearly all of the existing office space could bereconfigured more efficiently with betternatural light, more energy efficiency, healthier
better ventilation and more sound control. Great designs will try and minimize
interruptions and provide flexible work space.
Landlords are not selling space butproductivity and more productive space willcommand higher rents per square foot.
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Conclusions
Changes in the office market are inevitable. Space needs to be improved (noise, sound, air,
temp) and become more efficient.
Yet the demise of the office market is not goingto occur because downsizing takes time but itmay catch some owners off guard.
Progressive landlords and consultants will getout in front of this curve and assist in thetransition rather than resist it.
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Thanks
If you wish to see formal papers on the topic,contact: [email protected]
Thanks to Inna Panchuk, MSRE Candidate2013, University of San Diego, for researchassistance on design trends.
mailto:[email protected]:[email protected]