The Slow Death of Office Space is Exaggerated

by CoyDavidson on July 8, 2010

I am a twenty year veteran of the commercial real estate Industry and I have spent my entire career specializing primarily in the office sector. Given the fact I have been around for awhile; when I started my career nobody was using a personal computer, owned a cell phone or had ever even heard of the internet. I vividly remember what seemed like major events in my adoption of technology such as:

  • Using a fax machine with that awful thermal paper for the first time;
  • My first cell phone that was slightly larger in size than a brick;
  • My first email address;
  • Making the switch from dial-up to broadband; and
  • Most recently creating my own personal business blog

We have seen some pretty dramatic advances in technology over the past 20 years which has changed the way we do business. Over the years, along with these advances in technology, have periodically come predictions that our need for office space would slowly fade.

There is no argument that technology, shifting demographics and environmental iniatives to name just a few factors, has had some impact on the workplace. New terms such as; Telecommuting, Hoteling and Mobil Work Strategies were born and some predicted all this technology that allowed us to work in new ways would ultimately result in the need for less office space.

Yet we have continued to build-out those spaces that we spend so much of our daily lives at, in all the new office towers that dot the skylines of every major city, as well as both sides of the freeways that we travel to reach our suburban homes. Some are even as close and as easily accessible as the neighborhood grocery store and convenience store.

In Corporate America there is a clear trend of striving to do more with less office space. The ratio of square feet per employee has trended down for many industries and open spaces with more efficient use of office space is often the objective.

So why do we continue to build office buildings?

The Rise of the Service Sector

More than five times as many Americans work in the service sector than are employed by manufacturers and the current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades. America is transforming from a manufacturing sector economy (where we make things) to a service sector economy (where people do things for others) and service companies are the primary users of office space.

Fifty years ago, the service sector accounted for about sixty percent of U.S. output and employment. Today, the service sector’s share of the U.S. economy has risen to roughly 80 percent

The shift in the U.S. economy away from goods-producing in favor of service-providing is expected to continue.  Despite the recent recession, service-providing industries are anticipated to generate approximately 14.5 million new wage and salary jobs by 2018. As with goods-producing industries, growth among service-providing industries will vary, but the strongest growth among is predicted to come from industries that are primarily users of office space.

We Still Need “Face to Face” Collaboration

Gartner Dataquest reported in 2008 that 25% of workers telecommuted in 2007, and in their recent 2009 projections, they estimate that number to hit 27.5% but for most that does not mean telecommuting or a virtual office full-time. Telecommuting seems beautiful on paper: work from home or any location you want, without the hassle of going into an office, but employees still need to collaborate on projects. The Millennials – Generation Y Workers who will enter the workplace will demand flexible office arrangements that include work from home, but they tend to like to work in groups and will blend in with older Generation X and Baby boomers who demand more flexible office arrangements.

The office space of corporate American will continue to undergo changes, but employees will still come to the office, at least part of the time and combined with projected growth of the service based economy over the next ten years, the prediction of a slow death for corporate office space is exaggerated.

The recession has halted the construction of new office space. Who knows exactly how long it will take for the economy to deliver job growth sufficient to absorb the current glut of vacant office space created by recent economic conditions. However, rest assured once a significant chunk of that vacancy is absorbed, the construction cranes will return to the skies.

  • Coy,
    Before I take the role of Devil’s advocate and propose my contrarian view, let me just state, I agree with you that office space is still the future of the majority of corporations. But not for the reasons you presented.
    If we have learned anything from this past recession, it should be that all things are possible. “Too big to fail” or “based on past performance” should never enter into our vocabulary again. Do you think the rise of the service sector looked like a boon to the typewriter industry in 1980? No one is arguing that businesses that historically used office space are growing. What people are saying, however, is that office space is no longer mandatory. And by your numbers, 25% of workers proved them correct. (I assume when you started in the business this number was somewhere in the 0% range)
    I think this is a great opportunity for office specialists like you and me. We have the opportunity to help our clients turn their real estate asset into a platform for marketing, employee attraction and retention, and employee satisfaction, a cornerstone of corporate culture, a competitive advantage, and a place of meaningful work.

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