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A common topic of conversation these days in certain real estate circles is the amount of office space needed.  The evolution from an office with fixed walls to a set of cubicles to an open floor concept to tele-commuting and “hoteling” to … shows a trend.  But how far can it continue?  And, to find its realistic prospects, what are its costs?

A recent Doc Zone documentary on CBC offers some insights.  While funny and occasionally insightful, it does a better job of raising questions than giving clear and powerful answers (e.g. notice the “brain porn” (a.k.a. neuroscience) near minute 25). 

1/ Supposedly, the space per employee fell from 90 sq. ft. per employee (1994) to 75 sq. ft. (20??) per employee.  You may wish to compare those numbers to the suggested estimates provided by a space calculator offered by any of the large real estate companies.  I am not sure whether the estimate includes hallways or toilet or small kitchens found in well-designed offices or, is the cubicle dweller expected to climb over the other cubicles at the end of the workday?

2/ Real estate is not merely a cost centre.  If it were then the goal of a property manager would always be to find new ways to reduce costs.  Done well, real estate can be a value-adding activity.  The costs of “cost-saving” decisions show up in other ways.  For example,

  • do green buildings have less turnover and do people who work in such buildings have fewer sick days?  (i.e. you really should learn about sustainable real estate.)
  • how much does location matter?  (i.e. would you have to reduce the space per employee by half if you could move to somewhere where the price per sq. ft. was half?)

The documentary makes a big point about the benefits of productive interaction (which is a big theme in urban economics and business studies).  But too much distraction is also costly: $10,375 per employee per year?  I was surprised to see that Facebook has a “Global Real Estate Director”.

3/ Some recent research suggests that the popular predictions are based on something like a best case scenario.  In an technically interesting and thought-provoking paper, Norm Miller notes that, when signing a lease, a business should account for future growth, family leave, sicknesses and turnover (when there might be two employees in a particular position.  Therefore, it is misleading to think of X sq. ft. per current employee and vary X.

Large companies have even more options to manage their space.  To decrease overall real estate expenses, a real estate professional could develop a more thoughtful space strategy: e.g. use improvements in communication and shift some of their space-intensive activities to places where space is less costly (say in the suburbs) while shifting other face-time-intensive activities to the costly space (e.g. downtown).

4/ It is interesting to note that most of the companies profiled in the Doc Zone report are new (e.g. Yelp, Facebook) with lots of young employees.  These companies need to find the idea that will define the next decade, quickly.  They are also likely to stumble often and to have lots of turnover (i.e. flexibility will have great value).  The employees may be motivated by more than this week’s pay (i.e. I have not seen many foosball games or slides between floors in the big banks).

So, this documentary may mean that we are past the technological trigger and approaching the Peak of Inflated Expectations in Gartner’s Hype Cycle.

PA

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