Office Space and the Recession
During any recessionary period there is going to be an increasing focus on cost control and efficiency and one of the first places companies look to reduce cost is to examine their real estate, which is typically one of their largest expenses, second only to staffing. The quickest and most significant way to reduce real estate costs is to eliminate space.
Step one to improving space utilization is typically to eliminate surplus space through subleasing, lease terminations, consolidating locations and selling non-productive real estate assets. Historically occupancy costs have been benchmarked in terms of three primary metrics:
- Square feet per employee
- Occupancy costs as a percentage of sales or revenues
- Occupancy cost per employee
After a company has gone through the disposition of surplus space process and aligned these metrics to acceptable levels based on their new employee count, what is next?
Improving Space Utilization
Numerous industry studies have shown that the average maximum utilization rate throughout the day for most office space is just 48 percent. A great deal has been written lately about the design of workspace and how companies are looking to do more with less office space. While this trend in some industries began prior to the latest economic downturn, the recession has caused companies to take a more aggressive posture towards office space density.
Office density: is defined as the space (per square foot) per workstation. Office density excludes accounting for support spaces and is calculated on a net rentable basis. A higher office density means a lower space per workstation and a lower density means more space per workstation.
Measuring office density helps to identify a benchmark for office efficiency in addition to assist with monitoring new office use techniques.
The general trend of the open plan workplace, where managers give up their private offices and join their employees in a more open office environment is becoming more commonplace. Open plan environments have grown in adoption partly due to the perceived cost saving, increased flexibility and the premise this strategy enhances team collaboration, productivity and communication.
Big Four professional services firm Deloitte is starting the build-out of its new 166,000-square-foot San Francisco headquarters and expects to expand the 1,500 person San Francisco office by 10 percent in the next year, the new office will represent a 42 percent decline in square footage from the 285,000 square feet the firm currently occupies.
There is no one size fits all when it comes to office space. How a company utilizes office space is driven by the activities of the organization. For example, Law firms typically have a higher ratio of private offices than other industries. In Houston, the energy capital of the world, we saw many companies in the oil gas sector take the open office space approach and while some have retained that strategy, others have trended back to a more traditional office layout with private offices for senior managers. I would note for energy companies, real estate occupancy costs as a percentage of revenues is much lower than most industries.
Whatever strategy a company takes in regards to its office space design, calculating “office density” is the workspace metric that is now in vogue.