5 Myths Regarding the Future of Office Space


by Coy Davidson

The Myths and Reality of the Office Market

I come across an article almost weekly regarding what is happening or will soon happen in the office market, not from an informed commercial real estate professional but rather from someone completely out of touch of what is happening with corporate office space users. Let’s set the record straight.

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Myth 1: The Suburban Office Market is Dying a Slow Death

The fact is that many suburban office markets are thriving and while there is evidence that some companies have looked to relocate to central business districts in an effort to attract a workforce increasingly made of millennial employees. In my opinion, the suburban office market is healthy in most major markets.

The demise of suburban office space is all centered around the premise that millennials want to live in big urban settings and companies will opt out of locating in the suburbs in order to attract the best talent from the millennial demographic.  There is no shortage of research, predictions or opinions as to what the millennial worker wants. As of late there has been some research data released conflicting with the widely accepted belief that all millennials prefer to live near and work in central business districts. While some certainly do, there appears to an equally proportionate share of the millennial workforce that prefers the suburbs.

What I do know from my highly scientific research (working with office space users), is that demand for suburban office space doesn’t appear to have declined at all, no matter what some 24-year-old freelance writer posting articles about millennials on a media website wants you to believe.

 Myth 2: The Private Office is a Thing of the Past

In the past enterprise employees were either assigned a cubicle or a private office depending on job function and seniority. Today, cubicles have given way to open layouts based on the belief that a more open layout may spur collaboration. While some companies have experimented with doing away with the private offices, the fact is that the private offices are still prevalent in many industries.

Creative office space is all the rage among TAMI (technology, advertising, media, information) companies who have tried to replicate a “Google-Like” office environment. Recently there has been a growing backlash to open layouts due to privacy concerns and a growing sentiment that the distractions associated with an open office plan actually decrease productivity.

The fact is that the private office never really went away, the use of cubicles declined in favor of of open office plans. Most corporate office space users in many industries understand that a private office setting is still important depending on the nature of the work performed in the assigned space as well as a perk for recruiting top top talent.

 Myth 3: Office Tenants Will Soon Have No Need for Brokers

This premise has been around since the advent of the internet and it hasn’t even remotely come to fruition. There is no question that tenants can find more information online about available office space and even the process of leasing space. However, the fact remains that leasing office space is a complex process that requires the expertise of professionals from multiple disciplines.

New technology is requiring commercial brokerage professionals to be more transparent than ever and is changing how and what brokerage services are delivered.  Reality is that the vast majority of office tenants, even smaller companies prefer to have the expertise and resources of a commercial real estate professional when making a huge financial decision that is often their second or third largest expense. Leasing office space is nothing like booking a hotel room, air travel or hailing transportation for a fee.

There will always be some ambitious young technology entrepreneur with the ambitious goal of replacing the need for commercial real estate professionals and streamlining the office leasing process. Hey it might happen someday, but it won’t be necessarily because of technology. The day the commercial lease broker goes away is when the highly fragmented population of office building owners all come together and standardize all the complex variables of a commercial lease transaction. I won’t see it in my lifetime.

Myth 4: CoWorking is the Future of Office Space

The Co-working phenomenon is an interesting one and I do not dispute the increasingly popularity of this trend, despite the fact that serviced office space has been around forever. The impressive growth of co-working operations such as WeWork has been well documented in the business media. Co-working spaces have historically been the preferred office setting for technology start-ups and freelancers.

As of March 2016, 15.5 million people in the U.S. were self-employed, according to the Bureau of Labor Statistics. While the long-term trend of corporations hiring contingent workers will continue, not every contract worker can or will be offered the opportunity to work in a co-working space as the cost of placing an employee or contract worker in a co-working space is often more costly than the traditional office setting.

The current business model of a co-working operations is to lease space from the building owner, buildout an attractive workspace and add a layer of additional workspace services and amenities and charge a substantial rent premium to its users, in order to turn a profit. I believe this business model is only sustainable for the long-term if you can create economies of scale in terms delivering services as well as leasing the volume of space that creates bargaining power with Landlords. WeWork and a handful of operators may achieve the necessary economies of scale.

The idea that most office buildings will have a third party co-working operation leasing office space from developers is absurd. Co-working operations will continue to grow but remain a niche industry confined to major urban cities, unless building owner themselves with a lower cost basis for office space begin to routinely invest in the management resources and incorporate self-managed co-working spaces into their tenant mix.

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Myth 5: The Need for Office Space Will Go Away Altogether

There are some that believe that the enterprise office itself is a business model that is outmoded and will one day disappear. There is no question that the office today looks very different than it did 10 or 20 years ago when these predictions began to surface. The idea that the need for office space will one day disappear has always been centered around technology making physical location unimportant, when people are able to connect seamlessly from almost anywhere on the planet.

Today, we have the ability to work from our home office, living room, corner coffee shop and even a different city than the location of your employer. The advancement of mobile communication technology allows workers to collaborate wherever and whenever. As a result, many enterprise employees are in the office increasingly less often and frequently working outside the office.

I am a firm believer the office isn’t going away and will remain a cornerstone of most enterprises. There is no question that technology is having a dramatic impact on the workplace but most employees of organizations still have a fundamental need for face-to-face communication and collaboration. Some positions are just not suited for working on daily basis from outside the office and frankly some employees just can’t be trusted to work outside the office on regular basis. Whether you believe that or not, I have no doubt this is the sentiment prevalent among senior executives in the enterprise.

The virtual office is a part-time solution for some employees that will eliminate the need for long commutes on a daily basis and improve the work-life balance of employees. I see the future of workplace mobility as one of a blended solution whereby more employees are allowed the flexibility of working from home part of the time but are still required to work from the office as the importance of  “face to face collaboration” will be increasingly realized.

The office space of corporate American will continue to undergo changes, space allocation per employee will continue to decrease, but most employees will still come to the office  for years to come. We will still build new office buildings and while older obsolete office buildings may be converted to alternative uses, or even razed, Corporate America will still demand state of the art office space to house the employees, that are either still required to or prefer to work at the office.

 

5 Myths Regarding the Future of Office Space Coy Davidson

Mr. Davidson is senior vice president Colliers International. His real estate practice is focused on assisting corporations and healthcare providers with their office space and facility requirements, identifying optimal locations, structuring cost effective transactions and corporate real estate strategy that compliments their business objectives.