Fueled by the design preferences of Millennials, the rise of telecommuting and continuing economic concerns, U.S. office tenants are opting for smaller spaces that promote more collaborative work environments.
That was the observation of show host Michael Bull and his guests on the most recent episode of “America’s Commercial Real Estate Show,” which examined office-use strategies of Corporate America, as well as some of the common mistakes office tenants make.
“From a utilization point of view, everything’s running about 25 percent [smaller] than it did in the past,” said Rick Ferguson, vice president, corporate office services for Bull Realty. “If someone had a 10,000-square-foot office space, it’s now 7,500 square feet.”
“What we’re seeing is a tremendous push towards more space compression … and a real focus is to get that collaborative environment,” added Scott Panzer, a New York-based vice chairman of Jones Lang LaSalle.
According to Panzer, financial service firms, which once typically sought 250 square feet of office space per employee, now seek 205 square feet for each worker. Media and advertising firms have similarly decreased their requirements, he said.
“The Googles of the world, they’re already [at] one person per 100 square feet,” Panzer added.
The use of hoteling, or providing office space to workers on an as-needed basis rather than permanently reserving space for a particular individual, to reduce overall space demands has become a significant trend in recent years, said Bob Chodos, a principal with Colliers International in Chicago.
“In the last 72 hours, I’ve had two companies ask me these questions: ‘Why is that I can walk around my space and see all these empty offices when people are traveling [to be with] our clients? What can I do to be more efficient?’” Chodos said.
Waiting until a lease expiration is fairly close before beginning negotiations for the next lease is a common mistake tenants make, said Richard Rhodes, managing principal with Cresa Bethesda.
“I’m working on two transactions now that have five years left where we are renegotiating the rent downward and extending the leases for [another] five years,” he said. “Had we not been at that point, that opportunity would never have presented itself. The more time you have [remaining on a lease], the more leverage you have, especially in a soft market.”
“I’ve seen that mistake as well, where tenants don’t have enough time, and they can’t negotiate from a position of power because they’ve started the deal too late,” said Michael Bull, president and founder of Bull Realty.
The entire episode on corporate office tenant strategies is available for download at www.CREshow.com.
The next “America’s Commercial Real Estate Show” will be available Aug. 30 and will examine the top college real estate programs.
“America’s Commercial Real Estate Show” is a national talk radio show about commercial real estate. The show host is 30-year commercial real estate veteran Michael Bull, CCIM, founder of Bull Realty, Inc, a regional commercial brokerage firm with three offices headquartered in Atlanta, Georgia.