OCCUPIERS’ DEMAND FOR EFFICIENCY AND COLLABORATION DRIVES LOCATION DECISIONS

CBRE recently released a study on and found a trend towards “Creative” spaces in many markets.

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Key points brought out in the study are:

Occupiers in major markets are using space more efficiently and embracing workplace strategies that incorporate workforce mobility. The average space per worker, currently estimated at 225 to 230 sq. ft., is under pressure as new space plans are implemented at 160 to 200 sq. ft. per worker.

Occupiers are showing a preference for Class A space in central business districts (CBD) and “creative space,” which is typically characterized as large floor plates with open configurations.  With the lack of new supply and modest demand will constrain certain markets in the near term, putting upward pressure on rents.

CBRE looks at 6 key points that they have found trending with Occupiers:

1.  Continued consolidation – Companies continued to shed excess space as both public and private sector employers look for ways to contain costs in the current slow-growth environment.

2.  The drive for efficiency –Companies are doing more with less as they adopt workplace strategies that embrace telecommuting and utilize “benching” and “hoteling” concepts to accommodate an increasingly mobile workforce.  Many companies are striving for 60% utilization rates for traditional office, with the goal of achieving greater density through implementation of “free address” concepts where employees work in unassigned desks versus being assigned to an individual workstation or office. The average office space per person hovers around 225 to 230 per sq. ft., according to CBRE Workplace Strategy experts. Many companies are aiming for an average of 150 to 180 sq. ft. per person, but are finding it difficult to achieve more than 160 to 200 sq. ft. once final workplace plans are put in place. Expect to see the amount of space per person continue to decline over the next few years as utilization rates increase and the drive for efficiency continues to take hold.
3.  Demand for centralized locations – Companies are seeking locations in close proximity to public transportation, housing, restaurants and nightlife to attract and retain younger, knowledge-based workers as the “war for talent” heats up. Demographic trends are accelerating this movement as young millennials continue to enter the workforce and are increasingly attracted to the amenities that an urban location can offer.
4.  Still an emphasis on collaboration – Yahoo’s announcement prohibiting “work from home” is an example of the importance that many corporate occupiers, particularly in the technology sector, place on close collaboration and regular interaction as a way to foster innovation among creative knowledge workers. Demand for creative space that facilitates close collaboration and interaction between colleagues and clients continues to take hold in major markets across the country. These spaces— which often consists of open, larger floor plates with more natural light that offers open, reconfigurable areas for both work and play—allows for greater interaction and collaboration.
5.  Strong need for flexibility – Many companies are looking for ways to manage their real estate needs in ways that are more closely aligned with the quickly changing nature of the business cycle. Given the long-term, fixed nature of leases, increasing flexibility can be achieved by use of “third spaces” that are more variable in nature.  The emergence of the small, but growing, trend of co-working spaces in major urban centers builds on the need for flexibility for corporate occupiers as they manage an increasingly mobile workforce.  The emergence of on-demand space services  is part of this trend. Expect it to continue to gain momentum over the next few years as companies change their real estate strategies to adapt to rapid changes in their business or mergers and acquisitions are executed.
6.  Limited new supply  – The anemic pace of new construction in the near term is paving the way for an acceleration of rents over the medium term. The limited availability of financing over the past few years has hindered the amount of current office completions.
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